Knowles Corporation is aggressively transforming into an industrial technology powerhouse. The components supplier announced it will acquire capacitor manufacturer Cornell Dubilier in a $263 million all-cash deal. This strategic purchase provides Knowles with expanded exposure to highly attractive end markets including medtech, defense, and industrial electrification.
Privately-held Cornell Dubilier, based in South Carolina, is a leader in film, electrolytic and mica capacitors used in demanding applications. Its capacitors are found in sectors like aerospace, automation, and critical care medical devices. The company generates over $135 million in revenue annually.
The acquisition brings new state-of-the-art capacitor technology into Knowles’ portfolio. This allows Knowles to offer more innovative solutions and cross-selling opportunities to customers. Cornell Dubilier’s offerings create a compelling combined value proposition for Knowles in the industrials space.
Knowles CEO Jeffrey Niew stated the purchase will help Knowles “grow with new and existing customers as we work to generate stronger earnings and cash flow and create shareholder value.” The deal is expected to contribute positively to Knowles’ earnings per share (EPS) beginning in 2024.
Specifically, the acquisition provides three key benefits:
Expands Knowles’ addressable market – Cornell Dubilier significantly expands Knowles’ serviceable available market through its broad capacitor capabilities and presence in diverse sectors including medtech, defense, aerospace, and industrial automation.
Diversifies product portfolio – Combined with Knowles’ existing precision devices like RF filters and ceramic capacitors, the deal delivers a wider range of capacitor products and solutions including film, electrolytic, and mica capacitors.
Boosts profitability – Knowles expects the acquisition to be accretive to earnings per share starting in 2024. The purchase is forecast to contribute to the bottom line while Knowles maintains balance sheet flexibility through its capital deployment strategy.
For investors, the strategic deal offers exposure to higher growth markets as Knowles pivots towards attractive areas with strong tailwinds. The companies noted defense spending increases, healthcare application growth, and industrial automation advances are driving demand.
The announced $263 million price consists of $140 million upfront and $123 million in seller notes due over the next two years. Knowles expects to finance the deal through cash, existing credit, and the deferred paper. The total fair value transferred is estimated at 9.6x Cornell Dubilier’s trailing EBITDA including synergies.
The acquisition caps off a transformative year for Knowles as it shifts towards high value industrial technology. Knowles recently restructured divisions to optimize its focus areas. It is also reviewing strategic options for its consumer microphones segment.
Together, these moves aim to reshape Knowles into a higher growth, higher margin technology supplier. The company is working to leverage megatrends like IoT, EVs, and 5G adoption. Knowles is strengthening its industrial roots to drive value for shareholders.
The Cornell Dubilier deal provides Knowles with an expanded presence in crucial growth industries. It also refocuses the company towards participating in rising opportunities like defense, medtech, and automation. For investors, the transformative purchase plants Knowles firmly in key sectors, unlocking value over the long-term.
GXO Logistics’ $181 million acquisition of ecommerce fulfillment provider PFSweb signals the immense growth runway ahead for logistics providers as online retail continues rapid expansion.
The deal provides GXO greater exposure to high-growth ecommerce categories like health, beauty, luxury goods, apparel and more where PFSweb has cultivated specialized omnichannel capabilities. GXO also gains PFSweb’s proprietary order management systems, fraud protection, customer care services and distribution technologies that will strengthen its end-to-end fulfillment offerings.
PFSweb serves over 100 prominent consumer brands, including L’Oreal, Pandora, Kendra Scott and others through its facilities across North America, the UK and Belgium. This expands GXO’s relationships in categories experiencing online growth thanks to shifting consumer preferences.
The transformational rise of ecommerce is reshaping logistics networks and fueling acquisitions across fulfillment, last-mile delivery and automation. According to Statista, global ecommerce sales are projected to reach $5.4 trillion in 2023, highlighting the seismic shift to online shopping.
As volumes accelerate, logistics providers aim to capture demand through robust delivery solutions tailor-made for ecommerce. Fulfillment and last-mile acquisitions have increased as giants like GXO, XPO Logistics, UPS and FedEx move to capitalize on the boom in digital orders.
GXO is making sizable investments in automation, AI and optimizing warehouse flows to cement itself as the leader in orchestrating complex ecommerce fulfillment. The PFSweb deal aligns with its focus on allocating capital to high-growth, high-return logistics verticals.
For GXO, the acquisition deepens its competitive moat and brand relationships in strategically important retail categories. PFSweb’s expertise in direct-to-consumer support across the customer journey helps expand GXO’s proposition.
The blockbuster deal also gives GXO access to PFSweb’s 21-year track record successfully servicing and retaining top tier brands. PFSweb has developed a strong reputation for customized branded experiences and excellence in omnichannel execution.
GXO’s chief executive Malcolm Wilson emphasized how PFSweb complements GXO with brand relationships in rapidly expanding ecommerce verticals. The combination cross-sells more comprehensive logistics solutions to each company’s customer base.
For investors, GXO’s move spotlights the immense potential for logistics providers to capitalize on the secular shift online. Ecommerce has fundamentally transformed fulfillment, shipping and reverse logistics processes, with orders that are more variable, faster and customized compared to store replenishment.
Logistics companies essential to ecommerce are primed for significant growth as this trend accelerates. GXO, XPO, UPS, FedEx and other leaders stand to benefit from the structural shift given their networks, expertise and new technology investments.
Already PFSweb’s stock price has jumped nearly 50% following the acquisition news, underscoring Wall Street’s positive perspective. With ecommerce projected to continue double-digit expansion, the logistics sector remains firmly positioned to thrive into the future.
Gaming company Snail, Inc. is shaking up single-player games with the launch of Survivor Mercs, featuring groundbreaking Twitch integration that allows streamers to actively engage viewers.
Survivor Mercs is a roguelite military action game for PC. But what makes it truly unique is the ability for streamers to let their audience influence gameplay through real-time voting on upgrades, mercenaries and enemies.
This pioneering social element empowers streamers to meaningfully interact with fans during solo play for the first time. It expands engagement beyond passive viewing, creating a more immersive community experience.
As streaming continues growing, innovative integrations like Snail’s can profoundly impact both streamers and game developers. The company is leading the way in exploring how to make single-player gaming more social and fun to watch.
For streamers, it unlocks new ways to creatively involve their community. For developers, it opens up opportunities to design streamer-friendly games tailored for live audiences.
Snail’s CEO called the integration a “small step” toward reimagining audience participation in live gaming. But it could be a giant leap for revolutionizing solo play for the streaming era.
Beyond the groundbreaking Twitch element, Survivor Mercs promises challenging roguelite action with thousands of character combinations and procedurally generated maps.
Snail is pioneering the future of streaming-based gameplay. The company’s innovative integration of Twitch with solo play in Survivor Mercs kicks open the door to deeper social interaction and engagement between streamers and their loyal fans.
Tesla’s new Dojo supercomputer could unlock tremendous value for investors, according to analysts at Morgan Stanley. The bank predicts Dojo could boost Tesla’s market valuation by over $600 billion.
Morgan Stanley set a sky-high 12-18 month price target of $400 per share for Tesla based on Dojo’s potential. This implies a market cap of $1.39 trillion, which is nearly 76% above Tesla’s current $789 billion valuation.
Tesla only began producing Dojo in July 2022 but plans to invest over $1 billion in the powerful supercomputer over the next year. Dojo will be used to train artificial intelligence models for autonomous driving.
Morgan Stanley analysts estimate Dojo could enable robotaxis and software services that extend far beyond Tesla’s current business of vehicle manufacturing. The bank nearly doubled its 2040 revenue projection for Tesla’s network services division from $157 billion to $335 billion thanks to Dojo.
By licensing self-driving software powered by Dojo to third-party transportation fleets, Tesla could generate tremendous high-margin revenues. Morgan Stanley sees network services delivering over 60% of Tesla’s core earnings by 2040, up from just 30% in 2030.
Thanks to this upside potential, Morgan Stanley upgraded Tesla stock from Equal-Weight to Overweight. The analysts stated “Dojo completely changes the growth trajectory for Tesla’s autonomy business.”
At its current $248.50 share price, Tesla trades at a lofty forward P/E ratio of 57.9x compared to legacy automakers like Ford at 6.3x and GM at 4.6x. But if Morgan Stanley’s bull case proves accurate, Tesla could rapidly grow into its valuation over the next decade.
In summary, Tesla’s AI advantage with Dojo makes the stock’s premium valuation more reasonable. Investors buying at today’s prices could reap huge gains if Dojo unlocks a new $600 billion revenue stream in autonomous mobility services.
The Power and Potential of Dojo
Dojo represents a massive investment by Tesla as it aims to lead the future of autonomous driving. The specialized supercomputer is designed to train deep neural networks using vast amounts of visual data from Tesla’s fleet of vehicles.
This differentiated AI training will allow Tesla to improve perceptions for full self-driving at a faster pace. As self-driving functionality becomes more robust, Tesla can unlock new revenue opportunities.
Morgan Stanley analyst Adam Jones stated: “If Dojo can help make cars ‘see’ and ‘react,’ what other markets could open up? Think of any device at the edge with a camera that makes real-time decisions based on its visual field.”
Dojo’s processing power will permit Tesla to develop advanced simulations that speed up testing. The supercomputer’s capacity is expected to exceed that of the top 200 fastest supercomputers combined.
Tesla claims Dojo will drive down the costs of training networks by orders of magnitude. This efficiency can translate into higher margins as costs drop for autonomous AI development.
Dojo was designed in-house by Tesla AI director Andrej Karpathy and his team. Karpathy called Dojo the “most exciting thing I’ve seen in my career.” With Dojo, Tesla is aiming to reduce reliance on external cloud providers like Google and Amazon.
Morgan Stanley Boosts Tesla Price Target by 60%
The potential of monetizing Tesla’s self-driving lead through Dojo led analysts at Morgan Stanley to dramatically increase their expectations.
Led by analyst Adam Jones, Morgan Stanley boosted its 12-18 month price target on Tesla stock by 60% to $400 per share. This new level implies a market value for Tesla of nearly $1.39 trillion.
Hitting this price target would mean Tesla stock gaining about 76% from its current level around $248.50. Tesla shares jumped 6% on Monday following the report as investors reacted positively.
Jones explained the sharply higher price target by stating: “Dojo completely changes the growth trajectory for Tesla’s autonomy business.”
He expects Dojo will open up addressable markets for Tesla that “extend well beyond selling vehicles at a fixed price.” In other words, Dojo can turn Tesla into more of a high-margin software and services provider.
Apple just recently announced its first carbon neutral products – the new Apple Watch lineup. This achievement comes from innovations across Apple’s global supply chain over years to dramatically reduce emissions. It’s a major milestone toward Apple’s 2030 goal to make all products carbon neutral.
To become carbon neutral, Apple steeply cut watch emissions first via clean energy, recycled materials, and low-emission transportation. Any remaining emissions are addressed with high-quality carbon credits from nature-based projects like forests.
This shift demonstrates how companies can decarbonize operations and products through renewable electricity, material innovation, and carbon removal. If adopted widely, these strategies can significantly benefit the environment.
Apple’s progress was enabled by large investments in wind and solar energy. Their actions helped create over 15 gigawatts of new clean power. Scaling renewable energy is crucial for the transition away from fossil fuels.
The company also pioneered using recycled metals and fibers in devices. This reduces the need for carbon-intensive mining and materials manufacturing. Broad adoption would lessen impacts on natural resources.
Additionally, Apple funded carbon removal through forest restoration. This supports nature-based solutions to sequester CO2. The climate impact could grow exponentially if more firms financed conservation projects.
In summary, Apple’s carbon neutral product milestone highlights the environmental promise of renewable energy, the circular economy, and carbon removal. It demonstrates the potential for these strategies to transform manufacturing, conserve natural resources, and fight climate change.
The U.S. government is launching a monumental legal challenge against Google in a bid to curb the technology giant’s dominance in internet search. A federal antitrust trial begins Tuesday in Washington D.C. where the Justice Department and a coalition of state attorneys general will argue that Google improperly wields monopoly power.
At the heart of the case are allegations that Google unlawfully maintains its position in the search market through exclusionary distribution agreements and other anticompetitive practices. Google pays billions annually to companies like Apple and Samsung to preset Google as the default search engine on smartphones and other devices. This boxes out rivals, according to prosecutors.
The government contends that Google’s actions have suffocated competition in the critical gateway to the internet, enabling the company to extend its grasp with impunity. Google counters that its search supremacy is earned by offering a superior product that consumers freely choose, not due to illegal activity.
But smaller search upstarts like DuckDuckGo allege that Google abuses its might to hinder their ability to gain users. At stake in the trial is nothing less than how the power of dominant tech platforms is regulated and how competition – or lack of it – shapes the internet as we know it.
The verdict could lead to sweeping changes for Google if found guilty of violating antitrust law. Potential sanctions range from imposed restrictions on its business conduct to structural reorganization of the company. Fines could also be on the table.
Google’s practices echo the behavior that got Microsoft into hot water in the 1990s. That landmark case saw the government successfully prove Microsoft leveraged its Windows monopoly to quash competition. Google is accused of similar monopolistic plays via its search engine dominance.
The Google antitrust trial is slated to last around three months. Testimony from Google CEO Sundar Pichai and executives of tech firms like Apple is anticipated. The federal judge overseeing the case will determine if Google’s undisputed leadership in search equates to unlawful monopoly status.
The verdict stands to fundamentally shape Google’s role in internet search and potentially alter business practices of other dominant technology companies. It represents the most significant legal challenge to Silicon Valley power in the 21st century.
Online grocery delivery firm Instacart is gearing up to go public and has set the terms for its initial public offering (IPO). In a regulatory filing on Monday, Instacart outlined plans to raise around $616 million through the offering of 22 million shares priced between $26 and $28 each.
The IPO would give Instacart a fully diluted valuation of up to $9.3 billion. This is below earlier estimates of a $40 billion valuation, indicating moderating growth expectations. Nonetheless, the offering could still mark one of the largest public listings this year amid a freeze on IPOs over the past year due to market volatility.
Founded in 2012, San Francisco-based Instacart has established itself as a leading online grocery platform in the U.S. It partners with grocers and retailers to deliver items to customers’ doors in as little as an hour. Instacart competes in a crowded space against entrenched firms like Walmart and Amazon as well as delivery apps like DoorDash and GoPuff.
Take a moment to look at 1-800 Flowers.com, a leading e-commerce business platform that delivers gifts designed to help inspire customers to give more, connect more, and build more relationships.
Instacart plans to sell 14.1 million newly issued shares in the IPO, with the remainder offered by existing shareholders. Multiple prominent investors have committed to buying shares in the offering, including PepsiCo, which is investing $175 million, and Norges Bank Investment Management, Norway’s sovereign wealth fund.
Proceeds from the IPO will provide funding for Instacart to invest in areas like technology, fulfillment, and advertising as it aims to turn a profit. The company posted revenues of $1.8 billion in 2020 but has yet to become profitable.
The upcoming listing will test investor appetite for high-growth tech IPOs after a yearlong freeze. Instacart’s debut performance will depend on prevailing market sentiment closer to its trading date. But a successful IPO could boost Instacart’s brand and validate its status as a leading next-generation grocery platform.
Intercontinental Exchange (ICE), the financial markets data and infrastructure company, has finalized its $11.9 billion acquisition of Black Knight, a leading provider of mortgage software, data and analytics solutions.
The deal expands ICE’s growing footprint in mortgage technology services. Black Knight strengthens ICE’s capabilities spanning mortgage origination, servicing, and secondary market activities.
ICE, with a market valuation of $63 billion, has been actively acquiring assets to build out its mortgage tech segment. Previous deals include Ellie Mae, Simplifile and MERS. Black Knight, currently valued at around $10 billion, offers software and data services used by mortgage lenders, servicers, and real estate industry participants.
The combination aims to improve automation and digitization across the mortgage process through ICE’s financial resources and Black Knight’s housing domain expertise.
Black Knight shareholders could elect to receive the deal consideration in cash or ICE stock, subject to proration procedures. Preliminary results indicate strong demand for the stock option.
To secure regulatory clearances, ICE agreed to divest Black Knight’s Optimal Blue and Empower mortgage origination system businesses to Constellation Software Inc. “Our team is ready to apply our proven playbook to help improve the homeownership experience for millions of families,” said ICE CEO Jeffrey Sprecher.
The deal expands ICE’s information services and market infrastructure footprint into the massive U.S. housing market, while providing Black Knight greater scale and distribution capabilities.
Take a moment to learn about Information Services Group, a leading technology research and advisory firm that specializes in digital transformation services, including automation, cloud and data analytics, and market intelligence.
SoftBank Group’s Arm is gearing up for its highly-anticipated initial public offering (IPO), with ambitions to secure a valuation exceeding $52 billion. In an announcement made on Tuesday, the renowned chip designer unveiled plans to issue 95.5 million American depository shares, priced between $47 and $51 each, with a target of raising up to $4.87 billion at the upper end of this range.
While this valuation marks a decline from the $64 billion that SoftBank paid last month to acquire the remaining 25% stake in Arm from its $100 billion Vision Fund, it still surpasses the abandoned $40 billion sale of Arm to Nvidia Corp, which fell through last year due to opposition from antitrust regulators.
Arm, headquartered in Cambridge, England, holds a dominant position in the global technology landscape, powering over 99% of the world’s smartphones. Its innovative designs are also integral to a wide array of devices, spanning from tablets and laptops to servers and automobiles. Notably, Arm maintains a substantial presence in the United States.
Expected to be the largest IPO in the United States this year, Arm’s public offering carries significant weight as a litmus test for an IPO market grappling with challenges such as rising interest rates and geopolitical tensions stemming from the Ukraine conflict.
Despite these obstacles, investors are likely to welcome Arm’s IPO with open arms. The company boasts profitability and a remarkable history of technological innovation. Furthermore, Arm’s designs play a pivotal role in advancing emerging technologies like artificial intelligence and the metaverse.
For SoftBank, this IPO represents a major triumph. The Japanese conglomerate has been under pressure to enhance its investment returns, and while the sale of Arm would have been a monumental windfall, the IPO is a noteworthy achievement in its own right.
The success of Arm’s IPO hinges on several key factors:
1. IPO Market Conditions: The strength of the overall IPO market will play a vital role in determining Arm’s success.
2. Investor Appetite for Tech Stocks: As a technology company, Arm’s fate will be closely tied to investor sentiment towards tech stocks.
3. Valuation of Arm: The company’s valuation must be attractive to prospective investors.
4. Demand for Arm’s Shares: The level of demand for Arm’s shares will significantly impact the outcome.
If Arm’s IPO prevails, it could usher in a new era for the IPO market, potentially inspiring other startups to pursue public offerings. This success story would also bolster SoftBank’s financial standing and burnish its reputation as a savvy investor. Moreover, the technology industry would reap the rewards of heightened visibility and liquidity associated with Arm’s shares.
However, should Arm’s IPO falter, it could stymie the company’s growth prospects due to a lack of capital infusion. SoftBank would bear the financial brunt, and its reputation as an investor might suffer. Additionally, the technology sector would miss out on the potential benefits of Arm’s IPO.
In conclusion, Arm’s IPO is a watershed moment poised to leave an indelible mark on the company, SoftBank, and the technology sector at large. Its success will pivot on a complex interplay of factors, but if it prospers, it promises significant advantages for all stakeholders involved.
iCoreConnect, Inc. (Nasdaq: ICCT) recently underwent a business merger with FG Merger Corp. (Nasdaq: FGMC) and has since exhibited stability in the stock market. A notable event was a temporary halt in trading on Nasdaq due to a technical issue with the conversion of shares. However, trading resumed on August 30, 2023, after the issue was addressed. iCoreConnect is currently trending on various financial social media platforms and websites, reflecting heightened investor interest. Their stock price is up 206% since the start of the week as trading opened Friday.
iCoreConnect’s primary objective is to improve workflow productivity and practice profitability via its cloud-based software and technology solutions. Currently, the company has a portfolio of 16 SaaS enterprise solutions. Additionally, they’ve secured endorsements from over 100 state or regional healthcare associations in the U.S. Based on their recent statements, iCoreConnect has projected its revenue and annualized recurring revenue for 2023 and expressed interest in expanding into the ePrescription and insurance verification sectors.
To understand more about iCoreConnect’s activities, developments, and potential in the healthcare technology and enterprise solutions industry, a recent report from Noble Capital Markets Analyst Gergory Aurand provides a detailed analysis and overview.
Image: President Jimmy Carter and Chinese Vice Premier Deng Xiaoping meet outside of the Oval Office on Jan. 30, 1979
The US and China May Be Ending an Agreement on Science and Technology Cooperation − A Policy Expert Explains What This Means for Research
A decades-old science and technology cooperative agreement between the United States and China expires this week. On the surface, an expiring diplomatic agreement may not seem significant. But unless it’s renewed, the quiet end to a cooperative era may have consequences for scientific research and technological innovation.
The possible lapse comes after U.S. Rep. Mike Gallagher, R-Wis., led a congressional group warning the U.S. State Department in July 2023 to beware of cooperation with China. This group recommended to let the agreement expire without renewal, claiming China has gained a military advantage through its scientific and technological ties with the U.S.
The State Department has dragged its feet on renewing the agreement, only requesting an extension at the last moment to “amend and strengthen” the agreement.
The U.S. is an active international research collaborator, and since 2011 China has been its top scientific partner, displacing the United Kingdom, which had been the U.S.‘s most frequent collaborator for decades. China’s domestic research and development spending is closing in on parity with that of the United States. Its scholastic output is growing in both number and quality. According to recent studies, China’s science is becoming increasingly creative, breaking new ground.
This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of,Caroline Wagner, Professor of Public Affairs, The Ohio State University.
As a policy analyst and public affairs professor, I research international collaboration in science and technology and its implications for public policy. Relations between countries are often enhanced by negotiating and signing agreements, and this agreement is no different. The U.S.’s science and technology agreement with China successfully built joint research projects and shared research centers between the two nations.
U.S. scientists can typically work with foreign counterparts without a political agreement. Most aren’t even aware of diplomatic agreements, which are signed long after researchers have worked together. But this is not the case with China, where the 1979 agreement became a prerequisite for and the initiator of cooperation.
In 1987 former President Jimmy Carter visited Yangshuo, his wife Rosalyn and he insisted that went around Yangshuo countryside by bicycle.
A 40-Year Diplomatic Investment
The U.S.-China science and technology agreement was part of a historic opening of relations between the two countries, following decades of antagonism and estrangement. U.S. President Richard Nixon set in motion the process of normalizing relations with China in the early 1970s. President Jimmy Carter continued to seek an improved relationship with China.
China had announced reforms, modernizations and a global opening after an intense period of isolation from the time of the Cultural Revolution from the late 1950s until the early 1970s. Among its “four modernizations” was science and technology, in addition to agriculture, defense and industry.
While China is historically known for inventing gunpowder, paper and the compass, China was not a scientific power in the 1970s. American and Chinese diplomats viewed science as a low-conflict activity, comparable to cultural exchange. They figured starting with a nonthreatening scientific agreement could pave the way for later discussions on more politically sensitive issues.
On July 28, 1979, Carter and Chinese Premier Deng Xiaoping signed an “umbrella agreement” that contained a general statement of intent to cooperate in science and technology, with specifics to be worked out later.
In the years that followed, China’s economy flourished, as did its scientific output. As China’s economy expanded, so did its investment in domestic research and development. This all boosted China’s ability to collaborate in science – aiding their own economy.
Early collaboration under the 1979 umbrella agreement was mostly symbolic and based upon information exchange, but substantive collaborations grew over time.
A major early achievement came when the two countries published research showing mothers could ingest folic acid to prevent birth defects like spina bifida in developing embryos. Other successful partnerships developed renewable energy, rapid diagnostic tests for the SARS virus and a solar-driven method for producing hydrogen fuel.
Joint projects then began to emerge independent of government agreements or aid. Researchers linked up around common interests – this is how nation-to-nation scientific collaboration thrives.
Many of these projects were initiated by Chinese Americans or Chinese nationals working in the United States who cooperated with researchers back home. In the earliest days of the COVID-19 pandemic, these strong ties led to rapid, increased Chinese-U.S. cooperation in response to the crisis.
Time of Conflict
Throughout the 2000s and 2010s, scientific collaboration between the two countries increased dramatically – joint research projects expanded, visiting students in science and engineering skyrocketed in number and collaborative publications received more recognition.
As China’s economy and technological success grew, however, U.S. government agencies and Congress began to scrutinize the agreement and its output. Chinese know-how began to build military strength and, with China’s military and political influence growing, they worried about intellectual property theft, trade secret violations and national security vulnerabilities coming from connections with the U.S.
Recent U.S. legislation, such as the CHIPS and Science Act, is a direct response to China’s stunning expansion. Through the CHIPS and Science Act, the U.S. will boost its semiconductor industry, seen as the platform for building future industries, while seeking to limit China’s access to advances in AI and electronics.
A Victim of Success?
Some politicians believe this bilateral science and technology agreement, negotiated in the 1970s as the least contentious form of cooperation – and one renewed many times – may now threaten the United States’ dominance in science and technology. As political and military tensions grow, both countries are wary of renewal of the agreement, even as China has signed similar agreements with over 100 nations.
The United States is stuck in a world that no longer exists – one where it dominates science and technology. China now leads the world in research publications recognized as high quality work, and it produces many more engineers than the U.S. By all measures, China’s research spending is soaring.
Even if the recent extension results in a renegotiated agreement, the U.S. has signaled to China a reluctance to cooperate. Since 2018, joint publications have dropped in number. Chinese researchers are less willing to come to the U.S. Meanwhile, Chinese researchers who are in the U.S. are increasingly likely to return home taking valuable knowledge with them.
The U.S. risks being cut off from top know-how as China forges ahead. Perhaps looking at science as a globally shared resource could help both parties craft a truly “win-win” agreement.
What History Says About MegaCap Companies with NVDA’s Multiples
What’s riskier, a stock like Nvidia that has been moving up since the start of the year and has now risen more than 200%, or the stock you pick by throwing a dart at the Wall Street Journal? Nvidia (NVDA) will report earnings on Wednesday, the report has a significant risk of disappointing, even if it exceeds forecasts.
Background
The last time Nvidia reported quarterly results, the chip maker forecasted record revenue that was far above anything it had accomplished before. Naturally, investors sent the stock up and then up some more to the level we see today. On Wednesday, August 23rd, the company will share the actual results of its second-quarter earnings. If it doesn’t deliver or exceed expectations, there may be a lot of disappointed investors. Plus, a repeat projection of future earnings growth would seem necessary to maintain its trajectory. Nvidia’s current valuation is extremely high, it has been the poster child of the AI investment boom, it would seem there are more scenarios where it will disappoint the frenzy in the market for the stock then there are positives for a company with such high valuations.
The phrase “the bigger they are, the harder they fall” was used in the context of the stock market as early as the 19th century. In 1873, the New York Stock Exchange crashed, and many investors lost their life savings. The crash was blamed on the overvaluation of stocks. Since then, there have been a number of times the market and individual stocks have come to terms with the idea that the price has gotten ahead of itself, causing speculators to flee, causing a sharp decline.
Nvidia was big and has gotten bigger. As it relates to its report on second-quarter earnings on Wednesday, analysts have been expressing positive expectations. In a “buy the rumor sell the news” way of thinking, this alone may cause the stock price to deflate after the report.
An article published by Barron’s on August 21st points out, using data from WisdomTree, that Nvidia has a price-to-projected sales ratio, of 25, this jumps to a whopping 40 when using 12-month trailing sales.
The company now holds the distinction of having the highest price-to-sales ratio in the S&P 500. It is only the 100th company to hold that title since the 1960s. Tech companies had been in this position 27 times, and utilities a mere once. What has happened to these mega-cap hot stocks in the years to follow?
Image: Research conducted for stocks for the long run 6th edition, Jeremy Siegel w/ Jeremy Schwartz (2022).
Over the next year, the average price-to-sales monsters saw their price rise 12% versus the average for the market of 11%. Then, over the next three years, the average stock dropped 4% annually, compared to the market’s 9% rise. The relative fall off continued over the next five years, as the average for these stocks had fallen 2%, versus the market’s 10% gain, according to a book by Wharton economic professor Jeremy Siegel.
Image: Research conducted for stocks for the long run 6th edition, Jeremy Siegel w/ Jeremy Schwartz (2022).
As illustrated in the table above, the underperformance is even greater for the tech companies that hold the biggest price-to-sales ratios. And the median performance for stocks at these price-to-sales ratios is even worse.
Take Away
Based on its guidance, there is little doubt that Nvidia is on track to post results that are beyond enviable. At least a dozen equity analysts have recently raised price targets on NVDA. But can the news be good enough in light of its current pricing and the history of tech stocks that have come before? NVDA would have been a great stock to have bought months ago and held; the current probabilities, based on history, now suggest the run-up is over, and the potential for a decline within a year has increased dramatically.
Bitcoin and Ethereum had a bad day. After gaining a lot of upward momentum from late June after Blackrock, Fidelity, and Invesco filed to create bitcoin-related exchange traded funds (ETFs), the volatile assets have shown cryptocurrency investors that the bumpy ride is not yet over. What’s causing it this time? Fortunately, it is not fraud or wrongdoing creating the turbulence. Instead, three factors external to the business of trading, mining, or exchanging digital assets are at work.
Background
On Thursday, August 17, and accelerating on August 18, the largest cryptocurrencies dropped precipitously. Bitcoin even broke down and fell below the psychologically important $26,000 US dollar price level before bouncing. While some are pointing to CME options expiration on the third Friday of each month, most are pointing to a Wall Street Journal article, and blaming Elon Musk, as the reason the asset class was nudged off a small cliff. There are other less highlighted, but important, catalysts that added to the flash-crash; these, along with the WSJ story, will be explained below.
Smells like Musk
What could SpaceX, the company owned and run by Elon Musk, possibly have to do with a crypto selloff? On Thursday, the crypto market had a downward spike around 5 PM ET. It was just after the Wall Street Journal revealed a change in the accounting valuation of SpaceX’s crypto assets. Reportedly, SpaceX marked down the value of its bitcoin assets by a substantial $373 million over the past two years. Additionally, the company has executed on crypto asset divestitures as well. When the reduction took place is uncertain, but cryptocurrency holdings have been reduced both in terms of the amount of coins and the value each coin is held for on the books.
Elon Musk’s reputation is that of a forward thinker, and one that embraces, if not leads, technology. He has significant influence over cryptocurrency valuations, often instigating pronounced market fluctuations brought about by Musk’s influential posts on his social media company, X. The reduction coincides with a similar crypto reduction on the books of publicly held, Musk-led, Tesla (TSLA). The electric car manufacturer had previously disclosed in its annual earnings report that it had liquidated 75% of its bitcoin reserves.
While it should not be surprising that two companies stepped away from speculation on something unrelated to their business or lowered support for the still young blockchain technology, it gave a reason for a reaction to this and other festering dynamics.
Wary of Gary
The Chairman of the Securities and Exchange Commission (SEC), Gary Gensler, is viewed as a “Whack-a Mole” to crypto stakeholders that prefer more autonomy than regulation. Every time the SEC gets knocked down as a potential regulator, it resurfaces, and crypto businesses have to deal with the agency again.
Last month, Judge Analisa Torres made a pivotal decision in a case involving payment company Ripple Labs and the Commission. Her verdict declared that a substantial portion of sales of the token XRP did not fall under the category of securities transactions. The SEC claimed it was a security. This judgement was hailed as a triumph for the crypto sector and catalyzed an impressive 20% uptick in the exchange Coinbase’s stock in a single day.
On the same Thursday as the WSJ article, the SEC showed its face again with a strong response to the earlier ruling. Judge Torres allowed the SEC’s request for an “interlocutory” appeal on her ruling. This process will involve the SEC presenting its motion, followed by Ripple’s counterarguments. This is slated to continue until mid-September. Afterward, the Judge will determine whether the agency can effectively challenge her token classification ruling in an appellate court.
The still young asset class, its exchange methods, valuation, and usage techniques, once they are more clearly defined, will serve to add stability and reduce risk and shocks in crypto and the surrounding businesses. The longer the legal system and regulatory entities take, including Congress, the longer it will take for cryptocurrencies to find the more settled mainstream place in the markets they desire.
Rate Spate
The eighteen-month-long spate of rate hikes in the U.S. and across the globe is providing an alternative investment choice instead of what are viewed as riskier assets. Coincidentally, again on Thursday, August 17, the ten-year US Treasury Note hit a yield higher than the markets have experienced in 12 years. At 4.31%, investors can lock in a known annual return for ten years that exceeds the current and projected inflation rate.
Take Away
The volatility in the crypto asset class has been dramatic – not for the weak-stomached investor. On the same day in August, three unrelated events together helped cause the asset class to spike down. These include an article in a top business news publication indicating that one of the world’s most recognized cryptocurrency advocates has reduced bitcoin’s exposure to his companies. The SEC being granted a rematch in a landmark case that it had recently lost, where the earlier outcome gave no provision for the SEC to treat cryptocurrencies like a security. And rounding out the triad of events on crypto’s throttleback Thursday, yields are up across the curve to levels not seen in a dozen years. Investor’s seeking a place to reduce risk can now provide themselves with interest payments in excess of inflation.
But despite the ups and downs, bitcoin is up 56.7% year-to-date, 11.1% over the past 12 months, 110.5% over three years, 300% over five years, and astronomical amounts over longer periods. Related companies like bitcoin miners, crypto exchanges, and blockchain companies have also experienced growth similar to that found in few other industries over the past decade.
