TheChek News Flow

Tough terrain ahead for investors in energy transition minerals

Geopolitics and human rights concerns make lucrative opportunities difficult to access

Oil and gas production is rising, and coal remains the world’s most intensively mined commodity. But, to transition the world’s energy supply to more sustainable alternatives, mining companies are racing to open new frontiers of extraction for metals such as lithium, nickel, cobalt and copper — which will be crucial to building batteries and powering other green technologies.

Demand has surged for these critical minerals, as well as for rare earth elements such as neodymium, which is used to build powerful magnets for wind turbines. Demand for copper, too, is expected to surge by 50 per cent by 2040, while lithium will see eightfold demand growth in the same period. 

Consultancy Wood Mackenzie estimates that about $4.1tn needs to be spent on mining, refining and smelting these critical minerals, in order to meet global climate goals.

Any persistent shortage in supply of the minerals could cause a bottleneck in the clean energy transition. However, with key metals concentrated in regions that have become battlegrounds for green resources, increased geopolitical competition could help bring more of them to market.

China currently dominates both the extraction and refining of critical minerals, controlling more than 80 per cent of processing. The US defence industry has complained for decades about this exposure to Chinese supply chains for the minerals, but their uses in green goods have more recently brought the issue to mainstream attention.

National security concerns are also likely to make the issue a priority in the incoming administration of US President-elect Donald Trump, with several bills on critical minerals and rare earth elements receiving bipartisan support.

Retail investors seeking exposure to these in-demand commodities might consider listed mining companies such as Glencore, BHP and Anglo American.

But, while the metals they mine have received outsized media attention, the companies can be a volatile investment pick. VanEck’s Rare Earth and Strategic Metals ETF, a metals-focused fund launched in 2021, was the single worst-performing ETF in the first quarter of this year, according to research company Morningstar.

George Cheveley, portfolio manager at asset manager Ninety One, says that while “a lot of attention is often paid to important but niche areas such as rare earths and lithium”, familiar metals such as copper, aluminium and steel will be more “critical” to the success of the energy transition.

“Without the investment in supply of these major metals, there will not be enough infrastructure to support the energy transition,” Cheveley adds. “For investors, these metals provide a greater opportunity to deploy capital in proven businesses with diversified asset bases and the promise of strong risk-adjusted returns if the transition is successful.”

Wealthy nations’ response to China’s influence has been to form the US-led Minerals Security Partnership (MSP) — a coalition of 14 governments and the European Commission, which has emphasised its intention to pursue responsible labour and environmental standards.

But disentangling supply chains will be tricky. “China is the biggest purchaser of anything that’s dug up in Africa,” says Chris Vandome, a South Africa-based researcher with think-tank Chatham House. He point out that big US- and UK-based mining companies depend on China for processing.

Some Gulf nations seeking to diversify away from oil and gas have also made inroads into mining ventures spanning Africa and central and south Asia.

Saudi Arabia hopes mining will contribute $75bn to its economy by 2035, and the UAE’s International Resources Holding recently acquired a 51 per cent stake in Zambia’s Mopani Copper Mines. Developing countries including Indonesia and mineral-rich states in Africa have seized the opportunity to create jobs for their large young populations, as well.

For example, in the Democratic Republic of Congo, small-scale and artisanal mining employs 2mn workers, according to Delve, which provides data on this sector. And more than 70 per cent of the world’s cobalt now comes from the DRC. However, campaigners say there is a need to raise labour standards in a notoriously murky sector. In addition, labour scandals, including the use of child labour, represent a business risk that could, potentially, disrupt supply.

“Artisanal mining employs thousands of people in a region with very limited economic opportunities,” says Papa Daouda Diene, a Dakar-based analyst with the Natural Resource Governance Institute. “The solution is not to eliminate these activities, but to formalise them. In order to ensure stable supply, he says, countries should ensure that workers in producer countries benefit. Otherwise, projects could face tax disputes, export bans and strategic litigation.

Governments and financial institutions in the US and Europe have already set a variety of requirements for environmental, social and governance (ESG) compliance, including the long-standing Equator Principles — a benchmark used by the financial industry. However, with so many new laws coming into force, such as Europe’s carbon border adjustment mechanism — which taxes some greenhouse-gas-intensive imports — and a new due diligence directive, mining groups have complained that compliance with an alphabet soup of ESG standards could harm competitiveness.

Supporters retort that ESG risks are also financial liabilities — particularly in resource-rich regions where climate change is already exacerbating conflict. The diamond industry was long plagued by association with violence, with so-called “conflict diamonds” mined and sold to finance war in Africa.

Andrew Gilmour, executive director of the Berghof Foundation, which seeks to promote peace, wrote in the FT in July that accelerated demand for critical minerals driven by global warming now threatens, without oversight, to create a new class of “conflict renewables”.

Communist party officials to meet in coming days to discuss economic policy

China flirted with deflation in November, adding to pressure on Communist party officials to do more to revive consumer sentiment at a key meeting on the economy this month.

China’s consumer price index rose 0.2 per cent year on year, a five-month low and below a Reuters poll of analysts that forecast a gain of 0.5 per cent. The CPI rose 0.3 per cent year on year in October. On a month-on-month basis, prices dropped 0.6 per cent from October to November.

The country’s producer price index, which measures the prices of goods sold by Chinese manufacturers, declined 2.5 per cent year on year, compared with analysts’ forecasts for a 2.8 per cent drop and a decline of 2.9 per cent in October, continuing a two-year run of falling factory gate prices.

China’s economy has been dogged by deflationary pressures for months on the back of a property slump, prompting the government to announce a monetary stimulus in September and fiscal measures in November mainly targeting local government debt.

The Communist party is expected to hold one of its top annual economic policy meetings, the Central Economic Work Conference, in the coming days, with analysts waiting eagerly for any signs of a more concerted push to revive household spending.

“The Chinese economy continues to flirt with deflation, highlighting the inadequacy of the stimulus measures thus far in restoring private sector confidence, reviving domestic demand and putting growth back on track,”

said Eswar Prasad, professor at Cornell University.

He said the work conference offered an opportunity for the government to “present a broader package of targeted fiscal stimulus and reform measures” to boost growth and reduce the risk of “deflationary pressures becoming entrenched”.

Beijing’s stimulus measures in the past few months have included monetary measures to boost the stock market, interest rate cuts for mortgage holders and an easing of restrictions on homebuying.

The central government also announced a Rmb10tn ($1.4tn) debt swap plan that aims to enable local governments to catch up on salary and supplier payments that have fallen into arrears.

But a growing number of economists and scholars in China are calling for greater efforts to lift household spending beyond the government’s existing programmes, which have focused on subsidising consumers to upgrade home appliances or buy new vehicles.

Some hope the Central Economic Work Conference will focus on these concerns, though the high-level leadership meeting is more likely to signal the direction of policy rather than include detailed announcements.

“We expect policymakers to show rising concerns on growth headwinds and signal further stimulus to boost domestic demand and stabilise growth, with more focus on consumption, risk containment and high-tech manufacturing,” said analysts at Goldman Sachs.

The investment bank said the fall in inflation in November was due mainly to the stabilisation of food prices following supply disruptions in previous months.

UK retail tycoon and shareholder continues to press for board role at struggling company

UK retail tycoon Mike Ashley has written to fellow Boohoo shareholders to say the company must avoid a “fire sale” of assets, as he steps up his pursuit of a board role at the Aim-listed business.

In his latest letter to Boohoo shareholders, published on Sunday, Ashley wrote that he had met the retailer’s chief executive Dan Finley last week and “discussed a number of opportunities”, particularly for the Debenhams brand, which Boohoo bought in 2021.

Ashley, who owns 73 per cent of Frasers Group, which is Boohoo’s biggest shareholder, also wrote that he was “excited” about “working collaboratively” with Finley to turn around the group. Finley was appointed CEO at the start of November. Frasers has previously criticised Boohoo for having “rushed through” Finley’s appointment.

“Critical to [Boohoo’s] turnaround will be avoiding a fire sale of assets at knockdown prices,” Ashley wrote in the letter. “Debenhams should not be sold and if any other non-core asset sales are deemed necessary, I will insist on a rigorous process to maximise value.”

Responding to the letter, Boohoo said: “Mike Ashley is seeking a Board seat for his own interests, not those of Boohoo’s shareholders. Frasers’ track record of leveraging investments in companies for its own commercial advantage is plain for all to see. Boohoo’s independent board, on the other hand, is focused on maximising value for all its shareholders.”

Frasers, which is best known for its Sports Direct brand, owns 28 per cent of Boohoo. Ashley’s letter also said he wanted to seek out “more cost-effective and sustainable financing” for the business. Frasers, which criticised Boohoo’s recent £222mn debt refinancing, is “committed to supporting these efforts”, according to Ashley.

Boohoo’s shares have fallen more than 90 per cent from their June 2020 peak, a time when online shopping took hold during the Covid-19 pandemic.

Boohoo bought the Debenhams brand, its website and customer data for £55mn at the start of 2021 after the department store chain struggled to survive pandemic lockdowns.

Boohoo has previously said it believes Ashley is unsuitable to join its board and asked shareholders to block him from becoming a director. A shareholder vote on the question is scheduled for December 20.

Boohoo co-founder Mahmud Kamani, who owns 12.6 per cent of the company, last month gave up the title of executive chair to become executive vice-chair, while Tim Morris, a board member since 2021, became chair.

Ashley on Sunday described those changes as a “game of musical chairs”.

If appointed to the board, Ashley said he was “willing to agree that, for as long as I am a director of boohoo, I will not provide any confidential information about boohoo to Frasers, take on any board position at Frasers, discuss boohoo or its business with Frasers, or accept any board position at any competitor to boohoo.”

Tie-up would create world’s largest ad conglomerate in sector being upended by technology

Omnicom Group OMC 0.27%increase; green up pointing triangle is in advanced talks to acquire Interpublic Group IPG -0.75%decrease; red down pointing triangle, a deal that would create the world’s largest advertising company, according to people familiar with the matter.

A transaction could be announced as early as this week, some of the people said.

The exact terms of the deal being discussed couldn’t be learned. The all-stock deal is likely to value Interpublic at between $13 billion and $14 billion, excluding debt, some of the people said. Interpublic had a market value of nearly $11 billion as of Friday.

A combined entity would have net revenue of more than $20 billion, based on 2023 figures for each company.

Combining Omnicom, the world’s third-largest ad company, and Interpublic Group, the fourth-biggest ad company, would topple WPP as the industry’s biggest player. WPP’s net revenue last year was about $15.1 billion.

A deal would bring together some of the world’s best-known ad brands under one roof, following decades of consolidation on Madison Avenue. A handful of conglomerates are the power players behind the majority of ads people come across on TV sets, before they can play YouTube clips and on roadside billboards. In addition to producing advertisements, the companies own firms that buy ad space, develop loyalty programs, analyze shopper data, handle crisis communications and tap influencers for marketing campaigns.

Omnicom and Interpublic have helped create some of history’s most iconic ads, including “Think Different” for Apple, “Priceless” for Mastercard, “Because I’m Worth It” for L’Oreal and “Got Milk” for the California Milk Processor Board.

Omnicom, led by Chief Executive John Wren, includes agencies BBDO, TBWA, FleishmanHillard, and ad buyer Omnicom Media Group and works for companies including Disney, AT&T and PepsiCo.

Interpublic, which CEO Philippe Krakowsky leads, owns agencies such as McCann Worldgroup, Weber Shandwick, FCB and ad-buying firm Mediabrands, and has a client roster including L’Oréal, Johnson & Johnson and Geico.

A combination of Omnicom and Interpublic would mark the biggest deal to date on Madison Avenue. Omnicom pursued a $35 billion deal in 2014 with ad company Publicis Groupe, but it collapsed, partly because of battles over which company would control certain positions in the combined company. Omnicom and Publicis couldn’t even agree on which company would be the acquirer, The Wall Street Journal reported.

A merger could help Omnicom and Interpublic become better equipped to deal with an industry increasingly driven by technology, data and artificial intelligence. Ad companies are working to stave off competition from tech companies such as Alphabet’s Google and Meta Platforms that are using AI to drive deeper into the business.

Generative AI threatens to disrupt how agencies get paid and could potentially diminish demand for copywriters, graphic designers and the ad buyers, who decide where to place ads to target the right audiences.

Research firm Forrester said last year that automation could eliminate some 33,000 jobs, or almost 8% of the workforce, at ad agencies by 2030, with various forms of AI being responsible for a significant portion of these losses.

Interpublic and WPP are struggling to keep pace with rival Publicis, which adapted faster to the technological shifts that reshaped how brands connect with consumers. The Paris-based firm has spent billions on buying data and e-commerce companies. It has also targeted companies that specialize in digital transformation advisory work to better position it against consulting firms with a growing presence in the advertising and marketing business.

The approach has led to a hot streak of winning new business from companies including Pfizer, Hershey, Lego and media and entertainment giant Sky. It has also helped make Publicis the most valuable company in the sector, with a nearly $28 billion market cap.

Omnicom has mainly stuck to smaller deals and building up some tech offerings organically. Earlier this year, though, it signaled a change in its approach and shelled out $835 million for e-commerce company Flywheel, its largest deal to date.

Interpublic has trailed its rivals, losing business from big clients such as Pfizer, Verizon, Spotify, and BMW. It most recently lost the bulk of its most lucrative account, Amazon ad buying assignment, which was split between Omnicom and WPP.

Krakowsky has been actively shopping Interpublic and parts of the conglomerate for more than a year and talking to a range of parties, including private-equity firms Apollo and KKR, according to people familiar with the talks. The company has also enlisted McKinsey to help with a restructuring and cost-cutting initiative, according to people familiar with the matter.

Interpublic has sold off some creative and underperforming agencies, so it can invest more in technology and build a larger practice in so-called principal buying, a high-margin business in which agencies buy ad inventory and take ownership of the ad space, then resell it to brands. Traditionally, the companies would buy ad time and space on behalf of a brand, acting as an agent for the advertiser. Both Publicis and Omnicom have thriving practices in this area.

A deal between Interpublic and Omnicom would likely face government scrutiny, as the combined company would be a dominating force in the ad-buying space. Global ad spending is expected to top $1.03 trillion, excluding political advertising, according to GroupM, the ad buying arm of WPP.

The revamp of LVMH’s top creative and executive management is far from over and will last well into next year, several sources with first-hand knowledge of the matter say. Together with his new strongman, Group Managing Director Stéphane Bianchi, who is increasingly feared internally, LVMH CEO and controlling shareholder Bernard Arnault is reorganizing the luxury group he started building 40 years ago.

There are so many brands now at LVMH – more than 80 – and so many changes afoot that it’s tough to keep track. The current high level of turnover of executives and designers at LVMH is unprecedented, and it’s happening at a time when the luxury industry is battling its worst downturn in recent history.

The industry leader is not alone in going through a difficult leadership transition phase. Most major fashion and luxury groups are dealing with the same issue. At OTB, doors have been revolving among CEOs in the past 18 months, as described in Miss Tweed’s Owl column on Friday. Kering has changed the structure of its top management in the past year and a half, as well as the leadership of Gucci earlier this year and Saint Laurent and Balenciaga last month.

Chanel is expected to announce this week or next the appointment of its new designer, Matthieu Blazy, who resigned as creative director of Kering’s Bottega Veneta a few weeks ago, as Miss Tweed was first to report. British designer Louise Trotter, now at Carven and ex-Lacoste, is said to be a frontrunner to replace Blazy at Bottega Veneta.

At Chanel, more than a dozen veteran managers have left or been pushed into early retirement since the arrival of CEO Leena Nair in January 2022. Once Blazy joins, you can expect more organizational reforms at the world’s second-biggest brand after Louis Vuitton.

The leadership of Richemont has also changed this year and more moves are expected, as Miss Tweed reported last week.

At LVMH, the current merry-go-round of executives is part of Arnault’s plan to rejuvenate his executive team and prepare his own succession by giving his children more say in the group’s affairs.

One of the first major changes likely to happen next year is that Dior Couture, which is run as a standalone company, is set to become part of the Fashion Group, the entity that manages all of LVMH’s fashion brands except for Dior Couture and Louis Vuitton. These include Celine, Fendi, Loewe, Kenzo, Loro Piana and Patou.

This move is not designed to better run Dior Couture. It is to enable Delphine Arnault, 49, to take the executive reins of the Fashion Group and move sideways from CEO to Chairman of Dior Couture, several sources close the group said.

“Arnault realizes that Delphine is struggling at Dior,” one of these sources said. “Putting her at the helm of Fashion Group is the next logical step for her. It’s also part of Arnault’s plan to give his children more power and put them in key positions to test their leadership and management skills.”

Delphine’s strength is managing designers and spotting talent, not running a big company like Dior Couture. She was previously deputy CEO there, before joining Louis Vuitton in 2013 as vice president in charge of the brand’s products. Dior Couture’s sales have been down this year after several years of impressive growth. The brand has raised prices significantly in the past few years, but less so than its sister brand Louis Vuitton and rival Chanel.

In the current downturn, customers have become reticent to splurge on overpriced handbags, the main source of profit for brands like Dior, Louis Vuitton and Chanel. Most of Dior Couture’s revenues are made with a few best-selling handbags, such as the Tote and the Lady Dior.

Bringing Dior Couture into the Fashion Group was a plan first mooted in 2022 – again to give somebody a new job, not to better run the French brand.

Originally, Dior Couture CEO Pietro Beccari was supposed to become head of Fashion Group as a reward for having driven unprecedented growth at the brand. Two years ago, Beccari was being wooed by Kering, which was interested in potentially giving him Gucci, industry sources said. He had threatened to leave if Arnault did not give him something bigger to run.

However, just when that handover was supposed to take place, Michael Burke could no longer run Louis Vuitton as he was in the process of losing his wife and needed time off. Arnault had to find somebody quickly to replace Burke at the helm of his biggest brand. That’s why he named Beccari CEO of Louis Vuitton in January 2023.

If Delphine takes over the Fashion Group, it will mean that the division’s incumbent CEO Sidney Toledano, 73, will finally be able to retire. He nearly did this year but was quickly called back. In February, Michael Burke returned to work for LVMH as CEO of Fashion Group but abruptly left the job in April after an internal dispute. Hence, Toledano had to pick up the baton. He had made no secret about the fact that the was not ready to retire and was more than happy to keep going.

This was one of the most surreal episodes at LVMH this year. According to the group’s website, Burke, one of Arnault’s closest associates, is still CEO of Fashion Group and a member of the executive committee, and Toledano is no longer in charge of anything. Yet he’s the one handling all of the group’s major designer hires and changes at the moment. You have Pierpaolo Piccioli, formerly of Valentino, who’s being hired for Fendi, and Jonathan Anderson, who is expected to become Dior Couture’s new womenswear creative director next year, replacing Maria Grazia Chiuri.

“Once all the designer contracts have been sorted, then it will be a good time for Delphine to take over the Fashion Group,” one source close to LVMH said.

As part of his ambition to put his children in key positions, Arnault last month appointed his second son, Alexandre, 32, as deputy CEO of the Moët Hennessy wines and spirits division. Alexandre had been looking after Tiffany & Co.’s marketing and products since 2021. He was keen to return to France after the birth of his first son last year and wanted to be closer to the center of power that is Paris. Alexandre is in competition with his two younger brothers –Frédéric, 29, and Jean, 26. The three young men are jockeying to stand out and prove themselves with the hope of succeeding their father one day.

Fendi also has changes on the cards that go beyond hiring a new designer. Pierre-Emmanuel Angeloglou, Fendi’s CEO since May, may have to move on next year as he has not lived up to expectations. A search for his replacement is well under way, several sources close to LVMH said.

“People internally know that Angeloglou is not up to the task, but you cannot blame him, he’s never led a fashion brand before,” one of the sources said. Angeloglou joined Louis Vuitton in 2019 as director for fashion and leather goods, as well as strategic missions, according to his LinkedIn profile. Previously, he spent more than two decades at L’Oréal, where his final role was global brand president of L’Oreal Paris. Angeloglou left L’Oréal to be in fashion, but he may return to beauty in the end.

If Delphine Arnault takes over the Fashion Group, the brand will need a new CEO. That person could be Véronique Courtois, an LVMH veteran who is currently CEO of Dior Beauté. Previously, Courtois ran Guerlain and worked for Christian Dior Couture as marketing director. “Véronique is very respected by Bernard Arnault, she has his ear,” one source said. “She has a clear vision and understands this industry very well.” She’s also in the good books of Delphine Arnault.

“Delphine and Véronique get along very well,” a senior industry source said. “That’s a huge asset for Véronique.” Courtois is said to manage Christian Dior Beauté with an iron fist and has little time for Stéphane Rinderknech, who is technically her superior as head of LVMH’s Beauty division and well as the group’s Hospitality unit. Christian Dior Beauté generates more than 80 percent of the profits of LVMH’s Beauty unit.

According to several sources with first-hand knowledge of the matter, Courtois barely listens to what Rinderknech has to say during meetings and sometimes does not even show up at the meetings he organizes. “She likes to show him that she’s the one in charge of her empire and she will not let him meddle,” one of these sources told Miss Tweed on condition of anonymity.

If Courtois takes over Dior Couture, it would enable the brand to achieve its “One Dior” ambition of creating more harmony between the images of its perfume, cosmetics and make-up products with its fashion wares. Dior is the envy of the world in terms of size. In the past five years, its fashion business has grown tremendously, and its beauty sales as well.

Courtois’s move to Dior Couture would leave the CEO seat vacant at Dior Beauté. Angeloglou would be a good candidate for that job, internal sources say. “He left L’Oréal to work in fashion,” one said. “He may not want to work in beauty, but in the end he may not have much of a choice.”

Last month, there was speculation that Rinderknech would leave his job as head of the Beauty division and give his seat to Laurent Boillot, who was head of Hennessy but had to leave as part of the Moët Hennessy reorganization unveiled last month. LVMH’s outgoing CFO, Jean-Jacques Guiony, will become CEO of that division next year, with Alexandre Arnault as No. 2.

Boillot had previously hoped to get this job but he did not – in yet another miss for him. Two to three years ago, he had been told he had a chance to become CEO of the Beauty unit. In the end, LVMH picked Rinderknech instead, spending several million euros to poach him from L’Oréal. For example, LVMH had to compensate him for the loss of his stock options at the French cosmetics giant. “It’s quite possible that LVMH spent so much money to hire Rinderknech that it does not want to admit defeat,” one person close to the group said. “That’s why it’s keeping him for now.”

At meetings this week, Rinderknech showed no sign of weakness, that person said, adding, “It looks like he is sitting firmly in his seat for the moment.”

Rinderknech also has the full backing of LVMH’s new HR supremo Maud Alvarez-Pereyre, who replaced Chantal Gaemperle. After holding the job for 17 years, Gaemperle was brutally sacked last month and escorted to the door by security guards, as Miss Tweed reported.

Alvarez-Pereyre, who is close to Rinderknech’s sister, helped him join LVMH, as Miss Tweed previously reported. She is tough to bypass as, like her predecessor Gaemperle, she knows a lot about what the group’s executives have been up to. Alvarez-Pereyre took part in internal investigations of members of the group’s executive committee and other senior managers, sources close to the group said. Hence, getting rid of Rinderknech will not be quick and easy, as initially expected two weeks ago.

When LVMH announced the leadership changes at Moët Hennessy and Boillot was forced out as CEO, the group said that his new functions would be disclosed at a later date. Several sources said that Boillot was fed up with being promised jobs that he never got and was considering leaving the group. That would be a huge loss. Boillot has a big fan base at LVMH. The French group declined to comment for this report.

Another plan under study is to create separate watch and jewelry divisions. Jean Arnault, who is helping Louis Vuitton develop its watch business, is said to be a big fan of that idea. He’s passionate about watches and increasingly becoming part of Switzerland’s watchmaking landscape and close-knit horological circles. Jean Arnault enjoys taking part in public talks about watchmaking and hobnobbing with master watchmakers and entrepreneurs. He may be only 26, but he could eventually become head of LVMH’s watch division if it was created. LVMH’s watches are currently being supervised by Frédéric Arnault, Jean’s older brother. Frédéric, whose experience has been mainly in watches, has long said that he would like to work in fashion. Until earlier this year, he had been CEO of TAG Heuer for four years.

Frédéric may be given the reins of a fashion brand such as Celine or Loewe. Celine has just hired a new designer – Michael Rider, coming from Ralph Lauren. With the expected departure of Jonathan Anderson from Loewe to Dior, Loewe’s creative directorship will have to change as well.

Several industry sources said that Anderson could be replaced at Loewe by Guillaume Henry, who has been trying to resuscitate Patou with small budgets and has become increasingly frustrated about the lack of means allocated by the group to Patou. Henry is a talented designer who has done a great job building Patou with very feminine and joyful silhouettes. Previously, he did wonders at Nina Ricci with ultra-chic sensual dresses. Fashion specialists and headhunters believe he would be a great fit for Loewe.

It looks like this round of musical chairs is going to last well into 2025, as many of these organizational, executive and creative director changes are due to take place next year. The merry-go-round has not stopped spinning. Stay tuned.

Marvell’s role in helping tech titans create their own data center chips has boosted its revenue—and valuation

Matt Murphy has no interest in running a chip company 10 times the size of his current one. It is the smarter move, and actually the more ambitious one.

Murphy, who has served as chief executive officer of Marvell MRVL 0.12%increase; green up pointing triangle Technology since 2016, has been among the few names floated as potential replacements for the recently ousted Pat Gelsinger at Intel’s corner office. That led to the rare sight of a CEO using his own earnings call to deny that he is on the market.

“I am all in,” he said on Marvell’s Dec. 3 call, the day after Intel announced Gelsinger’s exit and various media outlets reported Murphy as a candidate. “The company is outstanding. The technology is best-in-class. I can’t think of a better place to work than Marvell.”

His timing was good. A strong earnings report and news of an expanded relationship with Amazon lit up Marvell’s stock, which had already risen 60% for the year at the start of the week. The shares have jumped another 18% since Tuesday’s report, putting Marvell’s market capitalization briefly above $100 billion for the first time ever (it was around $5 billion when Murphy took the job).

The latest gains have even put Marvell’s market cap ahead of much-beleaguered Intel, which still generates 10 times as much annual revenue.

Marvell’s recent trajectory suggests that the revenue gap will continue to narrow. The explosive growth of its data center business has finally reached a point where it can more fully offset weakness in the company’s more legacy segments, which sell chips used in goods such as telecommunications gear, cable TV boxes and autos.

Data center sales nearly doubled year over year to $1.1 billion in the just-ended quarter, and Marvell’s projection for the current period indicates the company will end its fiscal year in January with the data center unit encompassing about 72% of its total revenue, up from 40% in the previous year.

The next year is looking bright as well. Marvell’s latest deal with Amazon is a five-year “multigenerational” agreement that has Marvell helping Amazon design its own artificial intelligence chips. Amazon, which runs the world’s largest cloud computing service, has been expanding its internal chip efforts significantly, in part to reduce its reliance on Nvidia for crucial AI components. Amazon announced the next generation of its largest AI chip, called Trainium, at its annual developers conference this week. Analysts believe Trainium will play a role in Marvell’s AI custom revenue more than doubling in the next fiscal year ending January of 2026.

That is expected to help propel Marvell’s annual revenue to more than $8 billion in fiscal 2026, up 40% from what is expected for this year, according to consensus estimates from Visible Alpha. In addition, 20% growth is expected for the following year, when Marvell expects to be in production of custom AI chips for another unnamed big tech customer that analysts believe to be Microsoft. Analyst Mark Lipacis of Evercore ISI projects that the industry for custom AI chips will reach $30 billion to $50 billion in sales by 2030. In a note to clients last week, he said Marvell “has the potential to capture one-third of that market.”

What could spoil the party? Like Nvidia NVDA -1.81%decrease; red down pointing triangle, Marvell has significant exposure to booming AI investments that makes the company vulnerable to any downturns in that spending. That could happen if the AI services propagated by tech giants and their business customers fail to catch on with users. The same big tech buyers could even put a temporary pause on spending to absorb equipment already purchased. Such “digestion” periods have long been common in the data center market. But with its stock now trading nearly 45 times forward earnings—a 21% premium to Nvidia’s multiple—Marvell isn’t priced for the slightest of speed bumps.

Murphy isn’t worried. “We’ll see digestion at some point,” he said in an interview, adding that AI is only part of what is driving investment in so-called accelerated computing systems. His 30 years in the chip business have also acquainted him well with the industry’s brutal cycles. “We know it’s not going to be a straight line over the next 10 years,” he said.

The next two alone should keep him busy enough.

Sabotage, cyber and energy security are priorities for alliance’s new leader, Mark Rutte

BRUSSELS—NATO was created to fight a shooting war against Moscow. Now Secretary-General Mark Rutte wants the alliance ready to fight unconventional battles against unseen enemies.

Sabotage, hacking and terrorist-type attacks in the U.S. and Europe are escalating, Western security officials say. Politicians and intelligence agencies finger Russia, China, Iran and the West’s other adversaries for most of the incidents, but attributing blame is often difficult. Responding can be even harder.

Rutte and national leaders in the North Atlantic Treaty Organization say they must boost cooperation and prepare response plans before the string of low-grade attacks reaches a level closer to hostilities that could trigger military action.

Russia presents the most immediate threat, Rutte and other allied officials say, because it is using what are called hybrid attacks in response to the West’s support for Ukraine’s resistance to Moscow’s invasion.

“Russia is really ramping up,” Rutte said in an interview. NATO must “make sure that deterrence is there and that the Russians don’t try anything which is really risky.”

He said NATO and its members are responding by expanding exchanges of intelligence, conducting more exercises, boosting cyber defenses and enhancing protection of critical infrastructure. The alliance is now developing a plan for response to hybrid attacks that it aims to adopt at its annual meeting next summer in The Hague.

NATO members have primary responsibility for response to attacks, handling them at the national level, Rutte said, but the alliance can play a critical supporting role by pooling information and sharing best practices.

“We are already working very hard on making sure that we exchange information, [and] that we have the intelligence-gathering,” he said.

Secrecy and mistrust have long impeded intelligence-sharing among allies. It has improved significantly since Russia’s invasion of Ukraine, Michal Koudelka, director of the Czech Republic’s Security Information Service, said.

NATO in May launched a Maritime Center for Security of Critical Undersea Infrastructure, based near London at its existing Allied Maritime Command. In July, members agreed to create a new Cyber Defense Center to combat increasingly sophisticated threats. The center, to be based at NATO’s military headquarters in Belgium, will bring together military, civilian and industry experts.

Europe, rather than the U.S., has so far borne the brunt of attacks, although Russia and China have also tested U.S. resolve.

Russian hackers in 2021 shut down Colonial Pipeline, the largest fuel-transport system in the U.S., by breaking into its networks. Moscow blamed the hack on rogue elements, but the shutdown prompted President Biden to call Russian President Vladimir Putin and warn him that Russia had crossed a red line.

U.S. officials say China has installed malware in American infrastructure from energy grids to port cranes. Authorities have accused China of hacking U.S. cellphone networks and utility companies.

Rutte, who served as prime minister of the Netherlands for 14 years until July and took over at NATO in October, said Western leaders over the past decade have increased their understanding of adversaries’ untraditional hostilities.

“I think we lost our naiveté, all of us, and clearly came to the conclusion that collective defense” entails combating hybrid attacks, he said.

For more than a decade, Moscow has toyed with the politics of its perceived rivals through hacking and influence operations, but its efforts went into overdrive after Russia’s invasion of Ukraine in 2022, said Eric Green, a former senior adviser to Biden on the National Security Council.

Russian plots to send incendiary devices onto U.S.-bound cargo planes and a plot to kill the chief executive of Germany’s Rheinmetall have served as wake-up calls about just how serious the Russians have become, according to Green.

“Since the war started, they have drastically raised their risk tolerance,” Green said. “Three or four years ago, if someone proposed shooting the head of Rheinmetall, that would have been stopped. But now the attitude seems to be, ‘OK, let’s do it’.”

Russia, which has set up a hybrid-warfare headquarters in Moscow, is playing a game that is kinetic as well as psychological, diplomats and intelligence specialists say. So countering these attacks is a nuanced mix of hardening Western defenses against cyber forays and sabotage, but also playing down the significance of attacks when they are successful.

“What we don’t want is a situation in which everything that happens anywhere is suddenly attributed to the Russians,” a senior NATO official said. “It makes them look bigger than they are and more effective than they are. It instills anxiety.”

Fragile undersea fiber-optic lines and pipelines of NATO countries have emerged as a particular concern. Since Soviet times, Moscow has fostered a special arm of the military to map out pipelines and, more recently, fiber-optic cables for possible sabotage. Its operations have been beefed up as relations between Moscow and the West collapsed over Ukraine, the senior NATO official said.

China, which has been amplifying Russian disinformation campaigns against Ukraine and NATO, appears to be complicit in some undersea sabotage, the NATO official said.

Twice recently Chinese ships damaged undersea cables in Europe, the official said. One of them, the Yi Peng 3 bulk carrier, was surrounded by European warships last month, after it dropped an anchor in the Baltic Sea and dragged it for more than 100 miles, severing two critical data cables.

Finnish Foreign Minister Elina Valtonen said in an interview that NATO’s new center for monitoring undersea infrastructure will be an important asset in preventing attacks and for quickly repairing parts that are sabotaged. Companies running the pipelines and undersea cables are adding sensors to their equipment that are now feeding into the monitoring center, the senior NATO official said.

“In order to build deterrence, we do not just need to have the right response,” Valtonen said. Members of NATO need a “shared picture of what’s happening across the alliance.”

Moscow’s use of hybrid tactics, which it has honed over the decades since the Cold War, is likely to mushroom further in the coming years, in part because its conventional war in Ukraine has lately been so costly, said Seth Jones, a political scientist and defense expert at the Center for Strategic and International Studies.

The U.S. and Europe have so far been timid opponents against Russia in its hybrid tactics, Jones said, in contrast to the days of the Cold War, when the U.S. ran its own robust covert operations inside the Soviet Union.

“I think there’s a very strong rationale to be thinking about the growing threat that the Russians pose,” he said, adding that discussion of a coordinated response from NATO has been building for years.

“We really have to ramp up,” NATO’s Rutte said of allied preparations for unconventional warfare. “We really have to take a big next step to make sure that we protect ourselves.”

Can Stocks Pull Off a Third Consecutive Year of Big Gains?

One concern darkening the longer-term outlook is uncertainty about whether the AI boom can continue

Wall Street is grappling with whether another year of robust gains is possible for a stock market that is looking precariously expensive.

The S&P 500 has surged 28% in 2024 and is on pace for back-to-back annual jumps of more than 20% for the first time since a four-year stretch that ended in 1998.

Strategists at some of the nation’s biggest banks are projecting more modest returns in 2025. JPMorgan Chase, Morgan Stanley and Goldman Sachs project that the S&P 500 will reach 6500 by the end of next year, a 6.7% increase from Friday’s close of roughly 6090.

Others are a little more bullish. Barclays recently raised its price target to 6600. Bank of America and Deutsche Bank expect the benchmark index to hit 6666 and 7000, respectively.

Analysts generally agree that President-elect Donald Trump’s pro-growth policies will be a boon for stocks, but some question how much farther they can run. A backdrop of high interest rates, geopolitical turmoil and potential trade wars could dent the market’s gains, some warn. Yet many investors are hesitant to call an end to a rally that has repeatedly defied expectations.

“We’re kind of in the honeymoon phase of the new administration,” said Matt Miskin, co-chief investment strategist for John Hancock Investment Management. “But the Fed is going to be on the hook for reacceleration of the economy, when it’s doing pretty well, frankly, and perhaps a bit firmer inflation.”

In the coming days, investors will parse another round of inflation data to see whether price pressures are continuing to ease. That report will be one of the final readings on the state of the economy before the Federal Reserve’s December meeting, where the central bank is expected to cut interest rates again. Friday’s jobs report suggested the labor market remains healthy.

One reason for optimism heading into next year? More stocks are joining the rally. Traders are bidding up economically sensitive stocks that lagged behind the wider market during the first half of the year. The small-cap focused Russell 2000 index is within striking distance of its first record close in three years, and its November gains nearly doubled those of the S&P 500.

More than 220 stocks in the benchmark index have closed at a 52-week high since the end of October. It would now take erasing the gains of the top 171 stocks in the S&P 500, including Nvidia and Apple, to negate the index’s total return this year, according to S&P Dow Jones Indices data as of Wednesday.

Traders typically take a more inclusive rally as a sign that it has legs because the market is less vulnerable to a downturn if a few sectors stumble.

“I don’t think there’s any surprise about the broadening,” said Hal Reynolds, co-chief investment officer at Los Angeles Capital Management. “I’d say the only surprise is that it’s taken so long to occur.”

Much of the stock market’s gains in the first half were driven by the Magnificent Seven group of big tech stocks—Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla—that have been propelled higher by artificial intelligence fervor.

Those stocks, seen as safety picks for their massive balance sheets, hopped back into the driver’s seat of the market last week, when investors contended with political chaos in France and South Korea. A batch of better-than-expected earnings from Salesforce, Okta and Marvell Technology further lifted tech shares.

Longer-term, expectations for the stock rally look much bleaker than next year’s forecasts. Goldman expects the S&P 500 to gain a meager 3% a year over the next decade, while Bank of America sees flat to 1% annual growth.

One concern darkening the 10-year outlook is uncertainty about whether the AI boom will continue. Some strategists warn AI is unlikely to be as transformative as the market’s rally suggests, which could lead to bruising losses down the line.

A potentially stronger dollar during the Trump administration could also weigh on the earnings growth of larger companies that conduct business outside the U.S., some investors say. The U.S. dollar has surged in recent weeks, boosted by the prospect of higher tariffs.

That means that earnings growth beyond the Magnificent Seven could be especially crucial for stocks to continue their climb. Analysts polled by FactSet project S&P 500 earnings to jump roughly 17% next year.

Some investors are skeptical that those expectations, along with another year of blockbuster gains, will pan out.

“With a consumer that’s sort of petered out, drawing down a lot of their savings…it gets hard for me to see those higher price targets,” said Logan Moulton, senior portfolio manager at Intelligent Wealth Solutions.

But investors say they are still hunting for pockets of value in a market inundated with expensive stocks. Jimmy Lee, chief executive of Wealth Consulting Group, added to his firm’s position in small-caps and other sectors that are less expensive than megacap tech stocks.

The S&P 500 is trading at 22 times its expected earnings over the next 12 months, above its five-year average of 20. The index’s information technology sector, which houses Nvidia and Apple, was recently trading at roughly 30 times. In contrast, the S&P SmallCap 600’s multiple is about 17.

Traders also remain divided on how much and how quickly the Fed will cut rates in 2025 and beyond. Chair Jerome Powell last week indicated the central bank isn’t in a rush to ease policy.

“People think there’s going to be this kind of nirvana where the Fed is cutting interest rates and the economy, based on [Trump’s] policies, is growing,” said Lori Van Dusen, chief executive of LVW Advisors. “There are real risks out there.”