Burning Through Cash.
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1. Nvidia is often shorthanded as a “chip maker,” but an underappreciated contributor to its surging profit is its data center business. Unit revenue tripled in fiscal 2024. These technically complex and very expensive physical computing sites let the company reach beyond making chips into crafting what CEO Jensen Huang describes as modern digital "factories" that churn out AI. “This is not a chip business,” Huang told The Journal. “You’re building data centers, and if anybody’s ever seen a data center, go take a look and imagine the unbelievable amount of technology that goes into building these things.” The trend underscores the challenge of powering data centers for the “hyper-scalers” with insatiable demand as AI accelerates.
Nvidia didn’t just blow past quarterly earnings estimates and break the $1,000-a-share barrier; it announced a 10-for-1 stock split that will theoretically allow more investors to buy into the coming AI boom. Its forthcoming graphics processing for AI chip will cost between $30,000 and $40,000 per unit. Its dominance has Intel and AMD scrapping to be No. 2. Bonus: Nvidia’s rise in charts.
Electric-utility stocks have long been considered the ultimate in stodgy, slow-but-steady investments—appealing strongly to people who value income and long-term safety above growth and quick gains.
In the past few months, though, utilities have left the rest of the market in the dust. These dullest of all stocks have suddenly become a bet on the single flashiest area of the market: artificial intelligence. AI requires a lot of computing power, and computers use a lot of electricity.
This spring, “AI caught the market by storm,” says Douglas Simmons, portfolio manager of the $1.2 billion Fidelity Select Utilities mutual fund. “It became recognized more broadly among generalist investors that utilities have become a play on AI.”
As Bespoke Investment Group, a research firm, pointed out last week, three of this year’s five best-performing stocks in the S&P 500 are utilities: Vistra, Constellation Energy and NRG Energy. Vistra, up 143%, has even outperformed the king of AI itself, Nvidia; Constellation, up 85%, is barely behind it.
3. JPMorgan Chase & Co. is immersing new employees in AI training, preparing them for a technology CEO Jamie Dimon has likened to the impact of the printing press and steam engine. The nation’s biggest bank sees the emerging technology as worth between $1 billion and $1.5 billion, President Daniel Pinto said at an investors event. Dimon said AI will change every job and a “very, very” large impact on the firm’s 60,000 developers and 80,000 operations and call-center employees — nearly half the company. CFO Jeremy Barnum said technology spending will be about $17 billion for this year, a figure that set analyst Mike Mayo’s heart racing. Also at the event, Dimon, who is 68, said the bank's CEO succession process is “well on the way.”
4. A slew of new products featuring AI, including PCs that incorporate it directly into the Windows operating system, show why Microsoft arguably is the most powerful it has been since dominating the PC market in the 1990s’ “Wintel” era. When Satya Nadella took the reins in 2014, Microsoft was floundering. Under Steve Ballmer, it had missed the smartphone revolution, was lagging on tablets and was even losing market share in the PC operating system business that made it a household name. Nadella has successfully steered from PCs to the era of cloud computing, and now, to the age of AI. His early bet on OpenAI and its technology has given Microsoft as good a shot as any company at supremacy in this new era. But as Nadella begins his second decade, he faces substantive risks. Regulators, hackers and rivals each present threats serious enough to undermine Microsoft’s leadership. Above all, the company must reckon with its own leviathan size—and avoid becoming a victim of bureaucracy and bloat when AI’s protean nature calls for speed, agility and finesse.
5. Europe’s landmark rules on AI will enter into force next month as EU countries endorsed a political deal reached in December, setting a potential global benchmark. The AI Act adopts a risk-based approach to regulating uses of AI and bans a handful of “unacceptable risk” use cases outright, such as cognitive behavioral manipulation or social scoring. It also defines a set of “high-risk” uses, such as biometrics and facial recognition, or AI used in domains like education and employment. App developers will need to register their systems and meet risk and quality management obligations to gain access to the EU. Tech companies said worries about AI are overblown and the law will stifle innovation.
6. Alphabet’s self-proclaimed moonshot factory, known as X, is coming back down to earth. From its founding in 2010, the lab captured the public’s imagination with visions of a techno-utopian world it would help invent. The leaders of the lab acknowledged that many efforts would not pan out. Yet Google’s willingness to invest in speculative technology sent a powerful message to Wall Street and Silicon Valley. Now former employees say Google has become less a hothouse of innovation than a cautious custodian of its search empire, which appears to be increasingly under threat. OpenAI’s ChatGPT unleashed a new class of software that can succinctly answer questions and perhaps obviate the need to search on Google. This prospect set off a panic at Google headquarters that has transformed the company. When co-founder Sergey Brin turns up at work now, he’s more likely to be writing code for Google’s AI projects, far from the lab known as the Xplex, say people familiar.
7. BHP and Anglo American officially entered talks, raising the odds for what would be the largest merger in mining history. Anglo had previously rejected two takeover overtures from the world’s largest mining company, and had unveiled a restructuring of its own that in many ways mimicked BHP’s designs. But it agreed to extend a deadline under UK law for BHP to formalize one more bid after Anglo’s board said a third approach worth about $49 billion fell short due to a complex deal structure that placed too much risk on its own shareholders. The extension until next Wednesday keeps BHP’s hopes alive that it can still secure the largest-ever deal in the mining sector. A reminder that this deal is very much about copper, a key component in the “green energy transition.”
8. The Justice Department filed an antitrust lawsuit to break up Live Nation. The long-anticipated case, filed 14 years after regulators approved Live Nation’s merger with Ticketmaster, has the potential to transform the multibillion-dollar concert industry. The suit, which is joined by 29 states and the District of Columbia, accuses Live Nation of leveraging its sprawling empire to dominate the industry by locking venues into exclusive contracts, pressuring artists to use its services and threatening rivals with financial retribution, leading to higher ticket prices and stifling innovation and competition. It asks the U.S. District Court for the Southern District to order “the divestiture of, at minimum, Ticketmaster.” Live Nation denies that it is a monopoly and said DOJ had faced “intense political pressure” and that a breakup would not result in lower ticket prices or fees. It might be right on that last point.
9. The NCAA and its five most prominent conferences have agreed to allow schools to directly pay players for the first time in the 100-plus-year history of college sports, as part of a multibillion-dollar agreement to settle three pending federal antitrust cases. The move marks a dramatic shift for the NCAA, breaking with its century-old stance that college athletes are amateurs and therefore cannot share in any of the money they generate for their universities. It will completely reshape the business model for the top end of this billion-dollar industry. The NCAA will pay more than $2.7 billion in damages over 10 years to past and current athletes. The parties also agreed to a revenue-sharing plan allowing each school to share up to roughly $20 million a year with its athletes. There remain many details to hammer out, including approval from a federal judge. Coaches and leaders on campus have no idea what the specific rules of engagement are moving forward.
10. Kristin Johnson, a Democratic commissioner at the CFTC, has emerged as a top candidate to lead the FDIC. The Biden administration is racing to nominate and confirm a new head after Martin Gruenberg said he would step down once a replacement was installed. A political firestorm erupted after Cleary Gottlieb Steen & Hamilton released a scathing report this month detailing allegations of harassment and discrimination, commissioned after a WSJ investigation.
11. The crypto industry recorded its biggest-ever U.S. policy win as the House passed a wide-reaching bill to establish regulations for digital assets markets. The legislation, largely driven by House Republicans, would install the CFTC as a leading regulator of digital assets and the watchdog of the non-securities spot markets, and more clearly define what makes a crypto token a security or a commodity. Part of the aim is to limit the role of the SEC, headed by crypto-nemesis Gary Gensler, who blasted the bill with an unusual, lengthy statement. More than 70 Democrats bucked the White House to vote yes. The matter now heads to the Senate, where there's no counterpart bill and support remains unclear. By a much smaller margin, the House passed a bill barring the Fed from issuing a digital currency, which Republicans paint as a “financial surveillance” tool. Both votes reflect how deep-pocketed crypto is starting to scramble politics. Meanwhile, the SEC approved a rule paving the way for ETFs that buy and hold ether, one of the world’s largest cryptocurrencies. The surprise about-face comes less than six months after the agency approved bitcoin ETFs, which have proven to be a big success, with net inflows already surpassing $12 billion.
12. A significant shift in how U.S. markets process securities trades takes effect Tuesday. What’s known as T+1 will cut the time allowed to complete every transaction by half, to a single day. Even in an age of instant communication and live data, investors have had to wait days to take ownership of stocks they buy or receive payment for those they sell. During the original meme-stock mania in early 2021, investors buying shares of stocks like GameStop and AMC and retail platforms like Robin Hood had to post collateral to cover the two-day turnaround. At times Robin Hood restricted trading, infuriating investors and raising congressional eyebrows. The SEC says a shorter settlement window should lower odds of a default before a transaction is completed, lowering margin requirements for a broker and reducing risk that high volumes or volatility will force trade restrictions. But T+1 also means less time to address errors and for regulators to block potential proceeds from fraud. T+1 isn’t standard around the world, so many overseas institutions buying US assets must secure dollars in advance to ensure they have them in time. As much as $70 billion of daily currency trading could be at risk from a faster US settlement cycle.
13. In 2022, a London-based Citigroup trader working over a long weekend set out to sell a basket of equities valued at $58 million, but made an error while typing the order that created a basket valued at $444 billion instead, according to Britain’s Financial Conduct Authority. It fined the bank $79 million this week, saying its systems were poorly designed and its real-time monitoring was “ineffective,” allowing the trade to go through. Indeed, the trader ignored 711 error messages that popped up on his screen. The blunder sparked a five-minute selloff in the OMX Stockholm 30 Index and wreaked havoc in exchanges from Paris to Warsaw, wiping out $326 billion at one point. Such “fat fingering” happens more often than you might think.
14. The “Ozempic economy" keeps bulking up. Nestlé’s new line of smaller-portioned, high-protein frozen foods, dubbed Vital Pursuit, is aimed at the millions taking weight-loss drugs like Ozempic and Wegovy. Last fall John Furner, CEO of Walmart’s U.S. operation, said the retailer was seeing market changes from the growing demand for weight-loss drugs. A February Morgan Stanley report, using data from market research firm Numerator, found Ozempic users slashed grocery store spending by up to 9%, with snacks and sweets taking the biggest hit, and vegetables and protein sales ticking up. WW International, formerly WeightWatchers, has introduced a new food plan for those on weight-loss drugs, while luxury gyms are launching clinics with access to medical professionals who can prescribe them. In April, GNC said it will add a section to its 2,300 stores specifically for weight-loss drug users. This week Hims & Hers Health said it aims to offer generic versions of Wegovy and Eli Lilly’s Zepbound that are much more affordable. (Italics mine)
15. Boeing will burn through billions more in cash this year than expected and deliveries of new planes won’t improve in the second quarter from the first, as the manufacturer deals with a host of production challenges tied to its bestselling planes, CFO Brian West said. A month ago, he had forecast Boeing would generate free cash flow “in the low single-digit billions.” The new forecast shows the mounting costs of the plane maker’s latest crises. Boeing burned through nearly $4 billion in cash in the first quarter and West said that figure could be similar or “possibly a little worse” in the second quarter, but that the company would likely return to generating cash in the second half of 2024, though it is unlikely to generate cash in total for the year.
16. DuPont de Nemours plans to split, separating its electronics and water units through tax-free transactions, forming a trio of publicly traded businesses in a process expected to be completed in the next two years. That will leave the remainder focused more narrowly on industries such as biopharma and medical devices, with products including Tyvek and Kevlar. A growing list of industrial conglomerates have sought to boost returns by breaking into smaller, more focused businesses including icons such as Johnson & Johnson, United Technologies, Danaher and General Electric. Many traditional industrial conglomerates are finding fewer benefits from synergies such as pooled fixed costs, said Barry Cross of the Queen’s University Smith School of Business.
17. Africa is now home to 345 companies with over $1 billion in annual turnover and combined sales of more than $1 trillion, according to McKinsey. With foreign direct investment dropping—it slumped to $48 billion last year from $80 billion in 2021—many are turning to neighboring countries for growth. Since 2018, intra-African exports have grown by 32%, to $109 billion last year, compared with 18% for exports going elsewhere. Almost a fifth of African countries’ exports now stay within the continent, up from just over a tenth two decades ago. As they grow, African businesses are becoming more sophisticated in how they manage their operations and supply chains, says Matthieu Friedberg of ceva Logistics, a French company with offices in 25 African countries. “More companies will produce in Africa, for Africa, so we’re preparing ourselves,” says Philippe Labonne, head of Africa Global Logistics, a freight business with operations in 49 countries. arise, an industrial-park developer focused on Africa, has been helping set up commodity-specific manufacturing zones, including for cotton in Benin, meat in Chad and timber in Gabon, which it hopes will spur regional commerce. Liquid Intelligent Technologies, a pan-African technology group, has built a vast network of fiberoptic cables across much of the continent and is now busily constructing data centers.
Columns: Jessica Lessin: Publishers striking AI deals are making a fatal error. Tyler Cowen: The AI ‘safety movement’ is dead. Beatrice Nolan: Sam Altman may be starting to lose his luster. Breaking Views: Original Davos Man unveils half a succession plan. Jon Hilsenrath: The manicure economy. Schumpeter: Can anyone save De Beers?
Footnotes: Red Lobster’s bankruptcy filing stemmed from a classic private-equity sale/leaseback, not endless shrimp. Google’s new AI Overviews are off to a glitchy start. Elon Musk’s SpaceX weighs tender offer valuing firm at $200 billion. James Gorman prepares to leave Morgan Stanley after his storied run. UAW seeks a new election in Alabama. TikTok plans big layoffs in operations and marketing. Norfolk Southern to pay $310 million for East Palestine accident. Blackstone will grant equity to most employees in big buyouts going forward. Inside Scarlett Johansson’s battle with OpenAI, which is looking like less than meets the ear. The CEO of money manager Abrdn, Stephen Bird, steps down after a turbulent four-year tenure marked by deep outflows of client cash and a much-criticized (and hilarious) rebranding. The CEO of Grayscale Investments, the largest crypto asset manager, is also out. Stung by AI missteps, Samsung ousts its top semiconductor executive. The last funds from the CHIPS Act are being doled out to smaller firms. Pfizer boosts cost-cutting target. David Zaslav scrambles as Warner Bros. Discovery’s NBA package looks to be in trouble. (When you are up against Amazon, you are “in trouble.”) Charles Barkley is certainly mad about it. U.S. Steel accuses Cleveland-Cliffs of a “long-running misinformation campaign” to derail its sale to Nippon Steel. Macy’s sees “traction” in latest turnaround effort. Target’s struggles continue. Ashley Madison has doubled membership and heavily invested in security since its 2015 hack, says a former executive. Buzzfeed shares finally rose, but does it like the reason? RIP Kabosu, the Shiba Inu who was the face of the Doge meme.
RIP Tony O’Reilly, rugby star and once Ireland’s richest man, has died. In 2018, he told his former rugby teammates: “You win and you lose, and if you don’t know how to lose, you don’t know how to live.” He was the first CEO I covered.
Murray’s Assignment Desk: Per the JP Morgan item above, all corporate reporters should be digging into their companies and asking how they are spending on AI, thinking about AI, hiring for AI, incorporating AI in product development, using AI in employee functions, replacing people with AI, enhancing roles with AI—and if they are not doing any of these things, why not? A million stories are waiting to be told beyond AI speculation and novelty. This is not just a tech story.