September 2023

Nvidia Could Become ‘Anchor’ Investor in Arm's IPO

Nvidia, the American multinational technology company renowned for its innovations in graphics processing units (GPUs), is currently in negotiations to assume a pivotal role as the 'anchor' investor in the forthcoming initial public offering (IPO) of Arm Ltd. This potential move has sent ripples of excitement, speculation, and even some concern throughout the tech industry, as it could have profound implications for the global semiconductor landscape. Nvidia's involvement as the primary investor in Arm's IPO is a development laden with complexity, implications for competition, and potential for reshaping the semiconductor industry as we know it.

A Storied History of Innovation

Before delving into the current negotiations, it's crucial to acknowledge the historic significance of both Nvidia and Arm in the technology world. Nvidia, founded in 1993, has earned its reputation as a powerhouse in the GPU market. The company's graphics cards have powered everything from high-end gaming systems to scientific research and artificial intelligence applications. Notably, Nvidia's GPUs played a pivotal role in the development of AI, driving the deep learning revolution through their remarkable processing capabilities.

Arm Ltd., on the other hand, has a distinguished legacy of producing energy-efficient microprocessor designs. Founded in the UK in 1990, Arm's intellectual property (IP) is found in countless devices worldwide, from smartphones and tablets to embedded systems and servers. Arm's designs have become the cornerstone of mobile computing, offering a blend of power efficiency and performance that has made it a preferred choice for a wide array of applications.

The Proposed Deal: Nvidia as an 'Anchor' Investor

Now, the news that Nvidia is in discussions to become an 'anchor' investor in Arm's IPO is causing considerable buzz and speculation. An 'anchor' investor typically plays a substantial role by providing a significant investment, thereby lending credibility and stability to an IPO. In this case, Nvidia's involvement would not only inject a substantial amount of capital into Arm's IPO but also solidify a strategic partnership between the two tech giants.

The proposed deal would see Nvidia invest a substantial sum, potentially amounting to billions of dollars, to acquire a considerable stake in Arm. Such a move would have a series of far-reaching implications, not only for the companies involved but for the broader tech industry.

Implications for Competition

One of the central concerns surrounding this potential deal is its impact on competition within the semiconductor industry. Arm has long been recognized for its commitment to licensing its processor designs to a broad range of companies, enabling innovation and competition in the market. If Nvidia, known for its vertical integration strategy, becomes a significant stakeholder in Arm, it raises questions about the future availability of Arm's technology to competitors. Will Nvidia's ownership of Arm limit access to these designs, potentially stifling competition and innovation in the semiconductor space?

This concern is particularly relevant given Nvidia's ongoing efforts to acquire Arm entirely, a deal that has faced regulatory scrutiny and opposition from several quarters, including some of Nvidia's competitors. The combination of Nvidia's GPU technology and Arm's CPU designs could potentially create a formidable technology juggernaut, further consolidating the industry.

Global Regulatory Scrutiny

The proposed deal between Nvidia and Arm has already attracted the attention of regulatory bodies worldwide. Multiple jurisdictions are closely scrutinizing the transaction due to its potential to reshape the semiconductor landscape and influence the competitive dynamics of the industry. Regulatory approval is a significant hurdle that must be overcome for this deal to proceed, and any perceived threat to competition may slow down or even halt its progress.

China, in particular, has been cautious about this potential partnership. The Chinese semiconductor industry heavily relies on Arm's IP, and any restrictions on access to Arm's designs could significantly impact Chinese tech companies' ability to compete globally. Consequently, the Chinese government's stance on the deal is likely to play a pivotal role in its outcome.

Reshaping the Semiconductor Landscape

If the deal goes through, Nvidia's role as the 'anchor' investor in Arm's IPO could reshape the semiconductor landscape in various ways. Nvidia could leverage Arm's extensive customer base, which includes companies from various industries, to further expand its reach in markets such as automotive, data centers, and the Internet of Things (IoT). This strategic alliance could potentially result in more tightly integrated hardware and software solutions.

Additionally, the collaboration between Nvidia and Arm could accelerate innovation in AI and deep learning, as both companies have made significant strides in these fields. Combining Arm's CPU designs with Nvidia's GPU prowess could yield even more powerful and energy-efficient AI solutions, potentially revolutionizing industries that rely on AI technologies.

Potential Benefits and Concerns

The potential benefits of Nvidia becoming the 'anchor' investor in Arm's IPO are undeniable. It could inject a significant amount of capital into Arm, enabling further research and development, as well as supporting Arm's growth in various markets. This, in turn, could result in more advanced and energy-efficient processor designs, benefiting a wide range of industries.

However, there are also concerns, including the potential for market consolidation and reduced competition, as mentioned earlier. It's essential that the deal, if approved, includes safeguards to ensure that Arm's IP remains accessible to a broad range of companies, promoting innovation and competition in the semiconductor space.

Global Impact

The ramifications of this deal extend far beyond the companies involved. The semiconductor industry is a vital component of the global tech ecosystem, with implications for national security, economic competitiveness, and technological progress. As a result, governments and regulatory bodies worldwide are closely monitoring developments related to Nvidia's potential role in Arm's IPO.

Furthermore, the semiconductor shortage that has plagued industries ranging from automotive to consumer electronics has highlighted the critical role that chip manufacturers play in the modern world. Any consolidation or changes in the semiconductor landscape can have far-reaching consequences for industries and economies worldwide.

Conclusion

The news of Nvidia's discussions to become the 'anchor' investor in Arm's IPO is a significant development in the tech world. It has generated considerable interest, not only because of the potential financial implications but also because of the potential impact on competition, innovation, and the broader semiconductor industry.

The proposed deal is a complex and multifaceted undertaking, with regulatory hurdles and global implications. Whether it proceeds and how it is structured will determine its ultimate impact on the tech industry and the world at large. Regardless of the outcome, the tech world will be watching closely, as this partnership between two tech giants has the potential to shape the future of the semiconductor industry for years to come.

Midjourney prompt: “Nvidia in Talks To Be ‘Anchor’ Investor in Arm's IPO”

September 13, 2023

Tech Letter

Mad Hedge Technology Letter
September 13, 2023
Fiat Lux

(A GREAT CHIP STOCK TO BUY AND HOLD)
(QCOM), (APPL), (SOC), (SAMSUNG), (TSM)

A Great Chip Stock to Buy and Hold

Tech Letter

If there is a company I would tell my grandkids to work for then it would be semiconductor company Qualcomm (QCOM).

Why?

Even Apple (APPL) can’t replace them so easily and that counts for a lot in this day and age.

We learned just as much as Qualcomm said that it will supply Apple with 5G modems for smartphones through 2026.

Qualcomm expected to lose the Apple smartphone business, because they expected Apple to use an internally developed 5G modem starting in 2024.

They couldn’t develop the product fast enough so it is back snapping up modems with QCOM.

QCOM is the best of breed for smartphone chips and they can be found in every flagship Android device.

I am specifically referring to QCOM’s Snapdragon products which are a suite of system on a chip (SoC) semiconductor products for mobile devices.

The Snapdragon's central processing unit (CPU) uses the ARM architecture.

This line of chips is incredibly competitive and one of the foundational reasons to hold the stock.

Samsung’s SoC competitor named the Exynos is still a far cry from the Snapdragon no matter how hard they try and it seems like each iteration of the Exynos flagship SoC is always a generation behind the Snapdragon.

Apple do use their own SoC with the newest one named the Apple A17 Bionic, but QCOM will still monopolize the Android market with their own Snapdragon that is actually slightly better than the A17 Bionic chip.

The Snapdragon 8 Gen 3 beats the CPU clock speed of the A17 Bionic.

This doesn’t always translate to better real-world performance, but it’s still an impressive feat.

People believe the new Taiwan Semiconductor Manufacturing Company (TSM) 3 nanometer (nm) processing can lose to the advanced 4nm node on the 8 Gen 3.

However, Apple will probably maintain a CPU lead, thanks to better software tuning and more transistors in the same area thanks to a smaller 3-nanometer node.

Basically, Snapdragon is a little faster but Apple has higher performance because of its superior software.

There is no denying that Apple has fantastic software.

On the revenue side, this is great news for the staying power of Snapdragon products and continued sales to Apple will boost Qualcomm’s handsets business, which reported $5.26 billion in sales in the past quarter and could soften the blow of potentially losing a critical customer.

About 21% of Qualcomm’s fiscal 2022 revenue of $44.2 billion came from Apple.

APPL purchased Intel’s smartphone modem division in 2019 to build its own modem. However, evidence suggests that it will be challenging for Apple to move away from Qualcomm’s chips because of their complexity.

Qualcomm also makes money from Apple through cellular licensing fees, which were about $1.9 billion in 2022.

Qualcomm continues to collect royalties from Apple under a six-year agreement. That agreement was struck at the end of a legal battle between Apple and Qualcomm over royalties that was settled in 2019.

Qualcomm says that it expects to only supply 20% of the modems needed for Apple’s 2026 smartphone launch, signaling that it likely still expects the Apple business to eventually decline.

Apple’s new iPhone called iPhone 15 uses QCOM modems as do many other high-end smartphones.

It’s hard to believe that QCOM’s market capitalization is only $125 billion. The eye test alone makes me think this is a half a trillion-dollar company.

Revenue is accelerating and they offer a 2.9% dividend yield.

I can’t talk more about the high quality of products made by QCOM.

This company will have staying power and even if Apple decides to move on, there are a slew of companies ready to gobble up QCOM chips.

Readers shouldn’t trade this stock, but they should buy and hold for the long haul.

September 13, 2023

Jacque's Post

(AN ALTERNATIVE INCOME INVESTMENT TO BONDS)

September 13, 2023

Hello everyone.

Many of us are on the lookout to increase our income.

There are some ways to do this.

We know with interest rates surging our cash in savings accounts receive higher yield and 90-day T-bills also offer a good 5%+ yield.

But is there anything else besides Bonds where investors can find robust returns?

Preferred stocks are one option that comes to mind. Both my mother and I owned these in the 1990’s and early 2000’s. They combine elements of stocks and bonds in one investment.

Preferreds are attractive because they provide the stability of fixed-dividend payments, which is bond-like, but they also offer equity like appreciation. So, it is a nice balance. (Note, that the equity price appreciation is often lower than common stock.)

Bonds are offering 5%+ right now, but a preferred stock gets investment grade security that yields 6.5% - which is solid income – without taking on too much credit risk.

Most investors are attracted to preferred stocks because they offer more consistent dividends than common shares and higher payments than bonds. Preferreds are issued with a fixed par value and pay dividends based on a percentage of that par, usually at a fixed rate. Let’s say that a preferred stock had a par value of $100 per share and paid an 8% dividend. To calculate the dividend, you would need to multiply 8% by $100 (the par value), which comes out to an annual dividend of $8 per share. If dividend payments are made quarterly, each payment will be $2 per share.

One downside of preferreds is that they don’t have the same voting rights as common shareholders. The company is not beholden to preferred shareholders the way it is to traditional equity shareholders.

To recognise a preferred stock, look for a P at the end of the ticker symbol.

There are four types of preferred shares:

Convertible, Cumulative, Non-Cumulative, Participatory:

Convertible shares are preferred shares that can be exchanged for common shares at a fixed rate. This can be very lucrative for preferred shareholders if the market value of common shares increases. (This is the type of preferred shares my mother and I held). Once the shares have been exchanged the shareholder gives up the benefit of a fixed dividend and cannot convert common shares back to preferred shares.

Cumulative preferred shares have a clause that protects the investor against a downturn in company profits. If revenues are down, the issuing company may not be able to afford to pay dividends. Cumulative shares require that any unpaid dividends must be paid to preferred shareholders before any dividends can be paid to common shareholders. If a company guarantees dividends of $10 per preference share but cannot afford to pay for three consecutive years, it must pay a $40 cumulative dividend in the fourth year before any other dividends can be paid.

Non-Cumulative shares do not entitle an investor to missed dividends. (If one year the company decides not to pay dividends, they won’t pay it the next year. As a result, the investor loses his or her right to claim any unpaid dividends.) Interest on a non-cumulative deposit is paid on a regular basis, whereas interest on a cumulative deposit is paid at maturity.

Participatory Preferred shares provide an additional profit guarantee to shareholders. All preference shares have a fixed dividend rate, which is their chief benefit. However, on top of that chief benefit, participatory shares guarantee additional dividends in the event that the issuing company meets certain financial goals. So, for example, if the company has a really good year and meets a predetermined profit target, holders of participatory shares receive dividend payments above the normal fixed rate.

Instead of looking for single stocks that offer preferreds, you could look at SPDR ICE Preferred Securities ETF (ticker: PSK), which yields 6.5%.

You could also look at ETF’s that focus on dividend paying stocks which offer another avenue for income. Pro-Shares S&P Dividend Aristocrats ETF (NOBL) is one that comes to mind. It’s an $11.65 billion fund that tracks the S&P 500 Dividend Aristocrat Index. The yield is 1.95% and year to date return is 4.43%.

The yield doesn’t appear crash hot when you first see it, but long-term, you have to remember this is stock investing, and therefore you get the opportunity for price appreciation. So, over the long term you will most probably receive better returns those bonds.

The much talked about recession that may happen or may not happen, whether it be hard, soft or in the middle of those descriptions is background noise at the moment, but it is always wise to hold high quality companies in a stock portfolio, and companies that have dividends which keep growing tend to be those high-quality companies.

Happy Wednesday.

Cheers

Jacquie

September 13, 2023

Diary, Newsletter, Summary

Global Market Comments
September 13, 2023
Fiat Lux

Featured Trade:

(SEPTEMBER 29 ZERMATT SWITZERLAND STRATEGY LUNCHEON)
(TRADING DEVOID OF THE THOUGHT PROCESS)
(SPY), (INDU), (TLT), (USO)
(ON EXECUTING TRADE ALERTS)

On Executing Trade Alerts

Diary, Newsletter

From time to time, I receive an email from a subscriber telling me that they are unable to get executions on trade alerts that are as good as the ones I get. There are several possible reasons for this:

1) Markets move, sometimes quite dramatically so.

2) Your Trade Alert email was hung up on your local provider’s server, getting it to you late. This is a function of your local provider’s capital investment and is totally outside our control.

3) The spreads on deep-in-the-money options spreads can be quite wide. This is why I recommend readers place limit orders to work in the middle market. Make the market come to you.

4) Thousands of market makers read Global Trading Dispatch. The second they see one of my Trade Alerts, they adjust their markets accordingly. This is especially true for deep-in-the-money options. A spread can go from totally ignored to a hot item in seconds. I have seen daily volume soar from 10 contracts to 10,000 in the wake of my Trade Alerts.

On the one hand, this is good news, as my Trade Alerts have earned such credibility in the marketplace. It is a problem for readers encountering sharp elbows when attempting executions in competition with market makers.

5) Occasionally, emails just disappear into thin air. This is cutting edge technology, and sometimes it just plain doesn’t work. This is why I strongly recommend that readers sign up for my free Text Alert Service as a back up. Trade Alerts are also always posted on the website as a secondary back up and show up in the daily P&L as a third. So, we have triple redundancy here.

The bottom line on all of this is that the prices quoted in my Trade Alerts are just ballpark ones with the intention of giving traders some directional guidance. You have to exercise your own judgment as to whether the risk/reward is sufficient with the prices you are able to execute yourself. Sometimes it is better to pay up by a few cents rather than miss the big trend. The market rarely gives you second chances.

Good luck and good trading.

John Thomas

September 12, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
September 12, 2023
Fiat Lux

Featured Trade:

(A STAR PERFORMER IN THE BIOTECH UNIVERSE)
(GILD)

A Star Performer in the Biotech Universe

Biotech Letter

In the ever-evolving world of biotechnology, only a few names consistently stand out.

For years, Gilead Sciences (GILD) has stood out as more than just another player; it has consistently taken center stage as a star performer. This distinction is not based on superficial glitz but on Gilead's profound impact on the healthcare industry, particularly within the competitive HIV drug marketplace.

Biktarvy, Descovy for PrEP, and Sunlenca are more than mere pharmaceutical labels. Each represents a breakthrough, a monumental feat in a domain where every scientific discovery is not just valuable but potentially transformative. These aren't just drugs; they're the culmination of relentless research, dedication, and innovation.

Yet, even stars face challenges.

The recent pandemic cast an unexpected shadow over Gilead's illustrious record. The fallout? A notable drop in HIV diagnoses and prescriptions. While many companies might buckle under such pressure, Gilead's history tells a story of resilience and adaptability.

True to form, Gilead rose from the pandemic's challenges, focusing on an area of vast potential: oncology. Though the oncology division currently represents only a fraction of its total revenue, the rate at which it’s growing is astounding. In fact, its current pace outpaces most other sectors in Gilead's portfolio.

But let's step back for a moment and consider the broader picture.

Gilead is more than its product lineup. It's an embodiment of innovation. With a portfolio boasting over 60 active research programs, Gilead is a veritable treasure trove for investors hungry for dividends.

The numbers speak for themselves: a 31.6% dividend growth over the last five years, punctuated by an impressive 3.84% yield. For investors, this isn’t just a statistic; it's a promise of consistent returns.

The story of "Veklury" (remdesivir) is particularly noteworthy, providing a glimpse into Gilead’s financial agility and foresight. Introduced as a beacon of hope in the fight against COVID-19, Veklury saw sales soar to unprecedented heights.

When market murmurs hinted at a potential sales slump for the drug, Gilead pivoted, securing FDA approval to expand Veklury's application to a broader range of liver conditions. Consider the magnitude of this move: over 100 million Americans are grappling with liver diseases.

With this demographic being particularly susceptible to COVID-19, the market potential for Veklury is undeniable. However, the narrative of global health is as fluid as it is unpredictable. While COVID-19 might not dominate every headline as it once did, its presence is still felt worldwide. A recent surge in hospitalizations in the U.S. is a stark reminder of the virus's lingering threat.

Now, if we dive deeper into the financial intricacies of Gilead over the past five years, a pattern of resilience emerges.

The company boasts a 22.9% growth in revenue, accompanied by a 12.8% increase in free cash flow. And while Veklury’s contributions are significant, removing its influence paints a broader picture of a firm that’s consistently navigated both favorable winds and stormy seas.

Their adaptability shines through in the numbers. Gilead's oncology segment saw a remarkable 38% YoY growth in Q2 2023, generating $728 million in revenue. If these figures are any indicator of the future, the oncology division may soon be a powerhouse in Gilead’s financial framework, potentially contributing up to $10 billion.

Pivotal to Gilead’s revenue story are Biktarvy and Descovy. Their H1 2023 sales figures stand at $5.65 billion and $965 million, respectively. Predicting stratospheric growth rates might be ambitious, but data suggests that steady, upward progress isn’t just probable—it's expected.

The stock market is known for its whims, but seasoned analysts believe Gilead might currently be undervalued. The biotech industry is a roller-coaster, full of unexpected turns, but with Gilead at the helm, the ride promises to be exhilarating.

September 12, 2023

Diary, Newsletter, Summary

Global Market Comments
September 12, 2023
Fiat Lux

Featured Trade:

(THE GREAT AMERICAN ONSHORING TREND IS ACCELERATING),
(GE), (TSLA),
(MURRAY SAYLE: THE PASSING OF A GIANT IN JOURNALISM)
(THE LAST PEARL HARBOR ARIZONA SURVIVOR)

The Great American Onshoring Trend is Accelerating

Diary, Newsletter

Onshoring, the return of US manufacturing from abroad, is rapidly gathering pace.

It is increasingly playing a crucial part in the unfolding American industrial renaissance. It could well develop into the most important new trend on the global economic scene during the early 21^st century. It is also paving the way for a return of the roaring twenties to our home shores.

Of course, it is hard to quantify this assumption with hard data. US government statistics are a deep lagging indicator and are unable to keep up with a rapidly changing, interconnected, fluid world. No doubt, they will tell us this epoch-making sea change is underway in ten years.

However, it is possible to track what a single company is accomplishing. In 1973, General Electric (GE) ran the largest home appliance manufacturing facility in the world. Its Appliance Park in Louisville, Kentucky, employed 23,000 workers packed into six gigantic buildings, each as large as a shopping mall. It was so big, it even earned its own postal zip code (40225).

After that, the offshoring mania kicked in, with the firm motivated by a single factor: hourly wages. You could hire 30 men in China for the cost of one American union worker. The savings were too compelling to pass up, and The Great Hollowing Out of US manufacturing was off to the races.

GE tried to sell the entire operation but was too late. The 2008 financial crisis decimated the market for Midwest industrial facilities. You could only get the scrap metal value, or three cents on the dollar. By 2011 employment at Appliance Park had plunged to 1,863, and the region’s new “Rust Belt” sobriquet was well earned.

Then, almost imperceptibly at first, the trend started to reverse. Decades of 20% a year wage increases took the cost of a skilled Chinese worker from $300 a year to $25,000. The 2011 Japanese tsunami, followed by huge floods in Thailand, caused massive disruptions to the international parts supply network.

A minor strike by the Longshoreman’s Union at the Port of Oakland in California brought the distribution channel to a grinding halt. Business plans that looked great on an Excel spreadsheet turned out to be not so hot in practice.

It gets worse. When Chinese workers walked across the street to collect bigger pay packages, they often took blueprints, business plans, and proprietary software with them. Six months later, a local competitor would show up with a similar, although inferior, product at half the cost. Suddenly, globalization was not all it was cracked up to be.

In the meantime, the American labor force, reading the Chinese characters on the wall, evolved. Unions were disbanded. Antiquated work rules were tossed. The unions that were left agreed to two tier wage structures that had entry level employees coming in at $13.50 an hour, a fraction of the original rate.

Then management got smarter. By removing the assembly line from the marketplace, companies lost touch with customers. Designers lost contact with the manufacturing process, creating products that could only be built expensively, or not at all. Quality plummeted. Innovation suffered. By bringing manufacturing home, firms not only solved these problems, they were able to build better ones for less money.

China turned out to be farther away than people thought. Having middle management jet lagged up to three months a year proved to be very expensive. It takes six weeks to ship an appliance from the Middle Kingdom to the US if the shipping schedules are perfect.

An American plant can truck product to most US stores within two days. That wasn’t a problem when consumer products saw lives that ran into decades. It is a big deal when rapidly accelerating technological improvements require them to be turned over every three years or less, as they are today.

The energy picture is undercutting the arithmetic that used to justify offshoring. Oil prices levitating near $100 a barrel are up 400% in 14 years, elevating the cost of production in Asia and shipments to the US. In the US, the fracking boom has let lose a gusher of cheap oil. It has also freed up a few centuries worth of low carbon burning natural gas, giving American manufacturers a further cost advantage.

Better American management techniques are giving US based factories an edge. I saw this up close at the Tesla (TSLA) factory in Fremont, California, where workers have the ability to improve the assembly process daily and are incented to do so. The place was so clean and quiet, it felt more like a hospital than a factory. It turns out that a drive train with only 11 parts doesn’t require much labor to assemble it, and robots do most of that.

By adopting similar techniques, GE, is building the same number of appliances as it did during the 1960’s peak, about 250,000 a year, with one third of the employees.

Using the new thinking, many companies are finding out that offshoring was a big mistake in the first place, and are bringing production home. Some business analysts estimate that up to a quarter of the companies that offshored lost money doing it.

The fact that GE is onshoring is important. It is considered by many to be the best-run industrial company in the United States, and when it leads, many follow. On the heels of the GE move, Whirlpool has relocated its mixer assembly from China to Ohio, and Otis has brought home elevator making from Mexico.

Even Wham-O has jumped on board, the maker of Frisbees, Slinkies, and Hula Hoops, and a company that is dear to my heart (I dated the founder’s daughter in high school), moving production from the Middle Kingdom back to Southern California.

If I am right, and onshoring speeds up into the next decade, we may get another opportunity to relive the roaring twenties. By then, a shortage of workers will lead to higher wages, greater consumer spending, and rising standards of living. The price of everything will rocket, including your stocks and homes. US GDP growth will surge to 4%-5% a year. Inflation will, at long last, make its long-predicted return.

It will be an economy in which Jay Gatsby will feel right at home.

A Trend Reversal?

The Roaring Twenties Are Headed Our Way