Tuesday 12/09/23

  1. In TECH NEWS, the US does chunky chip and AI deals in Vietnam, Qualcomm gets a new Apple contract, Arm sees decent demand, Instacart tests investor appetite and AI could control the skies in future
  2. In RETAIL & LEISURE NEWS, supermarket prices tumble, Wilko shuts down, supermarkets might profit from user data and Wagamama’s owners ditch loss-making brands
  3. In REAL ESTATE NEWS, Vistry decides to focus on social housing while AI data centres see more investment
  4. In MISCELLANEOUS NEWS, the EU downgrades its own forecasts, Sweden is to spend big on defence, the FDA approves new Covid boosters, Oxford’s Mini plant gets a £600m boost, Tesla sees value in AI and CMS is the latest law firm to make big cuts
  5. AND FINALLY, I bring you some impressive kids…

1

TECH NEWS

So the US gets busy in Vietnam, Qualcomm gets an Apple deal, Arm sees strong demand, Instacart tests the investor appetite and air traffic control dabbles with AI…

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US and Vietnam unveil billions in semiconductor and AI deals (Financial Times, Mercedes Ruehl) highlights a number of chunky deals done in the country with the likes of Boeing, Microsoft and Nvidia as the US formally upgraded ties between the two countries in a Joe Biden visit. There will be more co-operation in areas such as cloud computing, chips and AI. Interestingly, Washington’s status was upgraded to the same level as that of China, Russia, India and South Korea – something that Hanoi had previously avoided in order not to annoy China. * SO WHAT? * This is all part of US efforts to stay in the region and wean itself off China “just in case”. Vietnam was Asia’s fastest-growing economy last year and this should give it a tremendous boost.

In chip news, Qualcomm strikes new Apple deal on 5G chips (Financial Times, John Aglionby, Alexandra White and Patrick McGee) shows that the chip maker has extended a deal to supply 5G modems for Apple’s phones for the next few years, which shows that the latter is still not able to make them in-house! Apple has been pushing, for the last few years, to make more components in-house, particularly after it sued Qualcomm in 2017 over what it thought were excessive licensing fees (although these claims were later withdrawn as part of a deal made in 2019). * SO WHAT? * I think that this goes to show just how good Qualcomm is at what it does and that even the mighty Apple is unable to cut it out of its processes despite it doing things like buying Intel’s 5G unit for $1bn to “expedite” its own rival technology! It’s important for Qualcomm to get this deal in place given that Apple is its biggest customer, accounting for almost 25% of its revenues.

Staying with the theme of chips, Strong demand pushes Arm to close IPO order book early (Financial Times, Arash Massoudi and Ivan Levingston) shows that the banks underwriting Arm’s $50bn listing have decided to close the order book a day early thanks to

strong demand for its IPO. The shares are still expected to be priced on Wednesday and some reckon that the strong demand means that they could go towards the top end of the initial range of $47-$51 a share – or possibly more – when the IPO kicks off. * SO WHAT? * Call me cynical, but I wonder whether there’s some gamesmanship going on here. Apparently, the order book is five times oversubscribed (i.e. that the demand for shares is covered five times over), which sounds pretty decent. However, TBH, I’ve been involved in IPOs that have been WAAAAAY more oversubscribed than that! I don’t really think that five times covered is all that impressive for a company that has over 90% share in its core business, particularly as its implied valuation is way less punchy than the $70bn that owner SoftBank was hoping for. Given the bumpy ride that Arm has taken to market this sounds like the underwriters are trying to juice things up by ratcheting up the FOMO in the hope that those who miss out on the launch will effectively support trading thereafter. Remember, how a newly-floated stock behaves on its first day (and potentially a month thereafter) is NOT necessarily indicative of what the market really thinks as one of the underwriters’ jobs is to support the share price. This means that if it rockets up on launch, then don’t necessarily think that everything’s all good – because the underwriters will be buying it like crazy – but if it falls DESPITE the underwriters’ efforts, then that is a VERY bad sign. We’ll see what happens soon enough, though!

Staying on the topic of IPOs, Instacart’s cut-price IPO to test Wall Street appetite for new tech listings (Financial Times, George Hammond and Tabby Kinder) highlights nervy times for the online grocery delivery company that has now set the price range for its forthcoming IPO at a valuation that is less than 25% of the private valuation it got two years ago! Venture capital groups bought $265m worth of shares in Instacart based on a $39bn valuation in 2021 whereas the latest valuation is now around $9.3bn! Ouch! * SO WHAT? * The IPO is expected to start trading next week and it will be closely monitored by many observers given that it will be seen as a bellwether for other potential tech sector IPOs.

Meanwhile, UK researchers start using AI for air traffic control (Financial Times, Clive Cookson) shows that UK researchers in partnership with National Air Traffic Services, the Alan Turing Institute and Exeter University – powered by government funding from UK Research and Innovation – have been working on something called “Project Bluebird” to make a computer model of air traffic control where all flight movements are directed by AI rather than humans! The idea is that AI could be used to direct aircraft along more fuel-efficient routes to cut down the environmental impact of aviation in addition to minimising delays and congestion. * SO WHAT? * This sounds compelling, particularly given the recent failure of air traffic control in the UK, and although the research leader is at pains to say that human controllers won’t ultimately be cut out you do wonder! After all, it takes three years to train air traffic controllers and there is currently a shortage of them – so AI could become extremely useful. Yet another use for AI!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

2

RETAIL & LEISURE NEWS

Supermarkets cut prices, Wilko shuts down, supermarkets might do something with your data and Wagamama’s owner ditches underperforming brands…

Supermarkets slash prices 30 times during summer (Daily Telegraph, Hannah Boland) shows that supermarkets have cut prices multiple times since the start of the summer as they try to hang on to/attract increasingly budget-conscious customers. Grocers had been roundly criticised for increasing prices quickly when their costs increase but then passing on cost savings very slowly to customers when their costs came down. The Competition and Markets Authority subsequently found no evidence of such profiteering and it is now turning its attention to large food and drink makers who generally have much higher margins (and therefore more room to cut!).

Staying with grocers, The supermarkets’ next big product is your data (Financial Times, Helen Thomas) is a really interesting article which contends that, given supermarkets thinning margins, they may well turn to another potentially lucrative revenue stream – using data from loyalty schemes to sell ads, either instore or online, to consumer goods companies! Companies want to be able to target marketing and want measurable returns and in-store ad space has increased considerably. It has the advantage of being very flexible in that it can respond to things like the time of day or

the weather. * SO WHAT? * I think that there is considerable growth potential here, but supermarkets are going to have to be very careful as to how they use customer data and not overwhelm the customers too much with in-your-face advertising. There are definite possibilities to be explored not only with products that supermarkets DO sell – but also with ones that they don’t, like holidays or cars. Sounds interesting, no?

Meanwhile, All 400 Wilko shops to close with loss of more than 12,000 jobs (The Guardian, Mark Sweney) heralds the death-knell for all of the troubled retailer’s stores, bringing a sad end to a recent frenzy of will-they-won’t-they do a deal. 12,000 jobs are to go as the £13m deal struck by discount retailer B&M just covered 51 properties – and zero jobs.

Then in the leisure sector, Wagamama owner offloads loss-making restaurant brands (Daily Telegraph) shows that The Restaurant Group (TRG) has agreed to sell Frankie and Benny’s and Chiquitos to Big Table, which owns Café Rouge, Las Iguanas and Bella Italia. * SO WHAT? * This will mean that TRG will be free to concentrate on Wagamama and its pubs and concessions division. It also expects that the move will juice its profit margins. FWIW, I think this is a good time to ditch tired brands (although I really don’t like Wagamama either! But that’s another story!) and concentrate on what is relatively decent. Still, the casual dining sector is having a tough time in the current cost-of-living crisis and it’s not likely to get much easier in the short term at least. 

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

3

REAL ESTATE NEWS

Vistry decides to focus and another fund pours money into AI data centres…

In construction news, UK building group Vistry to focus solely on social housing (The Guardian, Mark Sweney) shows that British housebuilder Vistry is going to focus purely on social housing. This streamlining of the business was welcomed by investors who sent its share price up by almost 14%, making it the biggest riser in trading yesterday on the FTSE. Vistry: switch into social housing augurs well for housebuilder (Financial Times, Lex) points out that funding from housing associations and local authorities means that Vistry will be less exposed to land prices, meaning that it will have lower risk and higher returns on capital. Also, what you lose

on margin you can gain on volumes. There is a “chronic shortage” of social housing versus supply (the National Housing Association reckons that demand is triple current supply) so Vistry should benefit from this new focus.

Then in Australian pension fund buys into European data centres to tap AI boom (Financial Times, Antoine Gara and Nic Fildes) we see that Australia’s biggest pension fund, AustralianSuper, is investing €1.5bn in Vantage Data Centers, one of the biggest data centre businesses in Europe. * SO WHAT? * Investing in data centres that power AI is a big deal at the moment, as per what we’ve already seen with CoreWeave and Blackstone. It’s one hot area, that’s for sure!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

4

MISCELLANEOUS NEWS

The EU downgrades its forecasts, Sweden invests more into defence, the FDA approves Covid boosters, Mini Oxford gets investment, Tesla has AI secret sauce and CMS is to wield the axe…

In a quick scoot around some of today’s other interesting stories, German economy teeters as tighter monetary policy slashes demand (The Times, Jack Barnett) shows that the European Commission has downgraded its GDP forecasts and picked out Germany as the only major European economy that will contract this year, potentially falling back into recession whereas the UK has “held up better than expected”. Its GDP growth forecast for the Eurozone has now been downgraded from 1.1% to 0.8% and it reckons that the bloc will avoid recession this year although come members may come close.

In ongoing business trends, Sweden to boost defence spending next year by almost 30% (Financial Times, Richard Milne) shows that Sweden intends to boost its defence spending budget by almost 30% next year in response to Russia’s invasion of Ukraine. * SO WHAT? * Major increases in defence spending have become increasingly prevalent since the invasion, benefiting defence companies around the world including BAE Systems etc. The ever-present threat of China and Taiwan will no doubt also be enough to keep the order books going for quite some time yet…

Elsewhere, FDA approves new Covid-19 boosters from Pfizer and Moderna (Financial Times, Steff Chávez and Jaren Kerr) highlights good news for the drug companies, particularly as we’re about to enter the ‘flu season and the inevitable variants the season brings.

In car news, BMW announces £600m package to save Oxford Mini plant (The Guardian, Jasper Jolly and Kalyeena Makortoff) shows that the German car company is putting a chunk of change into an upgrade of its Oxford factory so that it can produce the new electric Minis (which is a big deal because the original intention was to swerve the UK in favour of moving production to cheaper countries). The British EV dream is still alive! Meanwhile, AI supercomputer ‘poised to lift Tesla’s value by $480bn’ (Daily Telegraph, James Titcomb) shows that Morgan Stanley published a report which said that Tesla’s “Dojo” AI system used to train driverless cars could give the company a big advantage against its competitors and could make it possible for Tesla’s to be used as robotaxis. It is thought that licensing the tech to other manufacturers could be a major new revenue stream. * SO WHAT? * This sounds good, but remember that there was just recently a massive failure only two weeks into an experiment in San Francisco where a driverless car crashed into a fire engine. I think it’s one thing to have the tech, but it will be quite another to get people to actually believe in it.

Elsewhere, City law firm CMS prepares to make ‘significant’ job cuts (The Times, Jonathan Ames) shows that at least 19 lawyers look set to lose their jobs at one of the City’s biggest law firms. It is believed that the company will begin a redundancy consultation that will mean big cuts to the number of associate solicitors it employs in its corporate department. * SO WHAT? * Other companies, including Dechert and Reed Smith, have made headcount reductions and unfortunately that usually means others are more likely to follow.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

5

...AND FINALLY...

…in other news…

Some of you will know that I coach kids rugby at the local rugby club. It’s a brilliant thing to do and it feels great when you see them execute things that you taught them! Well there are some impressive kids in this video, I can tell you! I almost welled up when I saw that little girl fall over – but then look at what happens after that 👍

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)