TheChek News Flow

Three market uncertainties

Every moment seems especially uncertain when you are living it. It is always an illusion. In the shadow of several elections and a couple of wars, with central banks pivoting and equity markets on an unusually long bull run, late 2024 may feel especially dangerous. One way to remember that risk is just the water we swim in is to enumerate and describe our uncertainties. It makes them feel tractable. 

What follows are my three big questions, and my guesses at their answers. I choose the word “guess” deliberately. Confidence in the answer would knock the question off the list. Another required feature of a question is temporal specificity. Of course I’d like to know what GDP or CPI will be in a year’s time, but I always want to know that. 

Here’s what I lie awake at night thinking about: 

Is there a level for the 10-year Treasury yields that will crack the equity markets, and are we going to hit it sometime soon? To generalise wildly, stocks don’t like high and rising yields because they represent tightening financial conditions and they compete with stocks for capital flows. The recent history of the 10-year Treasury yield and the S&P 500 shows the tension:

Unhedged’s guess: Yes and yes. The market is pricing in a decline in rates, and stocks are expensive enough that investors will be looking for an excuse to reduce risk. At the same time, inflation is not going quietly; president-elect Donald Trump’s policy promises don’t seem likely to help with that. A crash seems very unlikely — there is still too much global liquidity around for that. But a meaty correction (something like late 2018?) seems eminently possible. 

Are we in a credit cycle? And, if so, what part of it? Corporate bond spreads over Treasuries are about as tight as they have ever been. In a normal world, that is consistent with late-cycle prosperity, suggesting that spreads’ next move is up and it is time to reduce risk. But are we still in post-pandemic suspended animation? Or is this actually a recovery? Opinions on Wall Street vary.

Unhedged guess: No. Cycles begin and end with downturns, which “reset” markets by wiping overleveraged players and forcing a general repricing of risk. There was no real downturn this time, because fiscal policy prevented it. It will take another downturn to return the economy to a cyclical pattern. Until that happens, history will be a poor guide to economic conditions.  

Is AI a bubble? AI is going to change everything. There are a handful of companies that have the resources to invest in the technology. So maybe those companies are the ones that develop profitable AI products. And maybe most companies will get a productivity boost from AI’s automation of white-collar work. If that’s true, there’s no bubble, and so there will be no pop. 

Unhedged’s guess: Yes. Railroads and the internet changed everything, too, but their first manifestation was in bubbles that burst. The combination of the fact that AI is obviously an amazing, important thing, and the fact that we don’t really understand how it will work as an industry, makes it absolutely perfect bubble fuel. AI hype has loads of room to run, and there will be a reckoning at some point. But you can’t know when, so you can’t trade it. You probably can’t even get out of the way. Buckle up, everyone. 

Billionaire investor had clashed with Brasília this year over alleged misinformation on his X social media platform

A Chinese state-backed company plans to launch a satellite service to compete with Elon Musk’s Starlink in Brazil, in a challenge for the US as Beijing expands its influence in Latin America.

The announcement from Spacesail, which is developing high-speed internet services through low Earth orbit satellites, came as Chinese President Xi Jinping visited Brazil this week, where he signed an upgraded partnership with his counterpart, Luiz Inácio Lula da Silva.

The deal with Spacesail also follows a recent dispute between Musk, whose SpaceX company owns Starlink, and Brazilian authorities over alleged misinformation on the billionaire investor’s X social media network.

Spacesail agreed with Brazilian state-owned group Telebrás to provide satellite communications and broadband Internet services, according to Chinese state media. 

The companies will study demand in areas not served by fibre optic infrastructure, according to the Brazilian government, with the aim of the service going live in 2026, a communications ministry spokesperson said. 

“Spacesail is committed to being a long-term partner to Brazil,” chief executive Jie Zheng told reporters late on Tuesday.

Brazil has sought to encourage competitors to Starlink, which controls almost half the satellite internet market in Latin America’s largest nation.

Musk this year refused to obey judicial orders in Brazil to take down accounts that were allegedly promoting extremist content on X, resulting in the platform’s temporary ban in the country. 

Starlink was dragged into the spat and forced to pay fines on behalf of X, as regulators that warned it risked losing its licence if it did not comply with court rulings. Musk ultimately agreed to remove the accounts.

Tensions between Musk and Brazil’s leftwing government were inflamed again over the weekend, when Rosângela Lula da Silva, the president’s wife, insulted Musk at an event about social media regulation.

Spacesail’s announcement, which comes amid US concerns about its waning influence in a region once considered Washington’s “backyard”, coincided with a whirlwind diplomatic tour through South America by the Chinese leader.

Xi attended the inauguration of a Chinese-built megaport in Peru last week, ahead of the Asia-Pacific Economic Cooperation summit in Lima. He then travelled to Rio de Janeiro for the G20 leaders’ conference before being received in Brasília with full state honours on Wednesday. 

Lula and Xi upgraded their “comprehensive strategic relationship” — already one of the highest in Beijing’s hierarchy of bilateral relations — to a “China-Brazil community with a shared future for a more just world and a more sustainable planet”. 

The agreement echoes of one of Xi’s core diplomatic doctrines, building a “community of common destiny for mankind”, which analysts believe refers to Beijing’s pursuit of a multipolar world that will enable its rise while eroding US dominance.

The two leaders also signed dozens of deals spanning agriculture, trade, infrastructure, technology and industry.

But Brazil has not joined China’s Belt and Road Initiative, Xi’s flagship international infrastructure programme, despite being courted by Beijing. Officials in Brasília believe they can secure Chinese investments without full membership in the programme.

Spacesail, which also operates under the name Shanghai Spacecom Satellite Technology, has ambitious plans to accelerate its satellite deployment, with a goal of 15,000 spacecraft in low Earth orbit by 2030, according to state media. It launched its first round of 18 satellites in August, followed by another round in October.

One of its previous international tie-ups in Germany became embroiled in legal disputes over the ownership of prized satellite spectrum licences.

The train system is one of the biggest public works in history, and it’s becoming a giant money pit

On his first day in office, leader Xi Jinping inherited an ambitious road map to build 10,000 miles of high-speed rail to link China’s biggest cities. He took those plans and supersized them.

What has emerged 12 years later is one of the biggest public works in history, soon to exceed 30,000 miles of high-speed rail. For many of its citizens, the vast network is one of the clearest signs of China’s progress, especially compared with the U.S., which has struggled to get any high-speed rail going. Lest they forget whom to thank, its top-of-the-line trains are named “Rejuvenation,” after Xi’s promise to restore China’s national power.

The build-out encapsulates Xi’s vision for China’s future, with a focus on advanced technology driven by government spending. Chinese leaders once prioritized lifting individual wealth to keep people happy. Xi’s colossal investment in trains is part of a return to the Communist Party’s roots by emphasizing collective benefits from the state.

The plan sticks to a well-worn economic model built on maintaining growth through infrastructure spending—even though China already has much of what it needs.

It’s becoming a giant money pit. China has spent more than $500 billion on new tracks, trains and stations in the past five years, while the country’s national railway operator, China State Railway Group, is nearing $1 trillion of debt and other liabilities. Just keeping up with its debt requires $25 billion annually.

While passenger numbers have rebounded following the lifting of Covid-19 restrictions, raising ridership will be especially challenging in the years to come as China’s population is projected to shrink by around 200 million people in the next three decades. Some of the newest lines are in effect duplicating older ones.

The expansion now stretches into quieter corners of inland China, such as central Sichuan province’s Fushun County, where the population of 700,000 mostly rural residents has been shrinking for years. It got its first high-speed trains in 2021, and there are now at least 12 high-speed rail stations within a 40-mile radius in the county and its surrounding areas.

On a recent afternoon, Fushun Station itself was practically deserted, with around 20 travelers milling about in a cavernous waiting room with seats for 1,000.

Another even newer station a few miles up the road was similarly empty. In the plaza outside, 50-year-old Liu Chuanfu was selling chilled rice cakes for 40 cents a bowl.

Liu roamed China for decades as a construction worker, including on a high-speed rail station in a wealthy coastal city. As the economy sagged, Liu’s pay fell 40%. He recently moved back home to Sichuan, where his expenses are cheaper.

Like many other Chinese, Liu praised the high-speed rail system overall for its convenience. Then he questioned how much more the country should build.

“We’re already saturated,” he said.

China’s nearly 30,000 miles of high-speed rail is already more than enough to circle the globe. China State Railway envisions adding nearly 15,000 miles more by 2035, costing hundreds of billions of dollars.

Such massive spending is a feature of China’s growth story, with investment making up about 42% of its gross domestic product, compared with 26% globally.

“If you want to get rich, first build the roads,” Xi has said to justify spending on transportation, including high-speed rail—no matter the cost.

The U.S., by contrast, has only very limited service on the East Coast that could plausibly be considered high-speed rail. A 500-mile line from Los Angeles to San Francisco under construction has grappled with costs spiraling to more than $100 billion and a still-uncertain completion date. While definitions vary, high-speed trains typically run anywhere from 125 to more than 220 miles an hour.

The challenge for China is that high-speed trains are far more costly than alternatives, such as traditional trains or buses, which many economists believe are sufficient for much of the country.

High-speed rail makes the most financial sense in densely populated areas where travelers will pay a premium to reach their destination more quickly.

The line connecting Shanghai and the tech hub of Hangzhou, home to Alibaba, drew an average of around 100,000 passenger trips every day during its first decade between 2010 and 2020, according to state media.

A similarly sized section running through Fushun County has reported only about 9,000 daily trips on average since opening in 2021, though that included a period until late 2022 when China was under strict Covid-19 controls.

All told, China State Railway’s liabilities grew to a record of about $860 billion as of September. The total debt tied to China’s rail expansion is even higher, since cash-strapped local governments are being required to bear many of the costs for new projects. Over time, maintenance costs will add up.

There’s little risk the railway operator will default, given its strong backing by China’s government. And proponents of China’s build-out say the fast trains create positive knock-on effects, such as cutting pollution from gas-powered cars, shortening travel times for business trips and promoting urbanization.

Yet as the government pursues trophy projects that symbolize its status as a leading power, at the individual level, many citizens are feeling poorer and their futures less secure. The rail investments also divert resources away from initiatives such as building a stronger social safety net that economists say China needs to help its aging population and increase domestic consumption over time.

Zhao Jian, a scholar at Beijing Jiaotong University who’s critical of the high-speed rail build-out, has argued in commentaries that China is turning a blind eye to the system’s financial perils. He has said the country would have been better off only building a few thousand miles of high-speed rail in its most densely populated areas. Hundreds of billions of dollars could have instead been invested in traditional railways that can also handle freight, as well as on more research in areas like advanced chips.

Spending on trains could also come at the expense of efforts to lift economic opportunities for Chinese people over the long run, with hundreds of millions of people across the ​country lacking in education.

“Just do the cost-benefit analysis,” said Scott Rozelle, a Stanford University economist who studies Chinese development.

Such efforts take years to bear fruit, while building trains offers an immediate boost to an economy that has struggled to keep people employed, economists said.

State media focuses on new trains as feats of Chinese engineering that create well-paying jobs. At work sites as high as 14,000 feet above sea level, one of China’s priciest rail projects is taking shape, linking Tibet’s capital of Lhasa with the central city of Chengdu in Sichuan, at a cost of more than $50 billion.

“Our village has over 30 people working for their rice at the railways,” a janitor at one station in Tibet along the new line told state media.

While not technically high-speed rail, the trains would run at around 100 miles an hour over the 13-hour journey. That’s still far longer than the 2½ hours it takes to fly from Chengdu to Lhasa, with plentiful daily options. Flights can go for as little as $50 one way, making it tough for the trains to compete.

Cheap seats

China says it can make its railways more economically viable. Over the past decade, Beijing pursued a series of reforms to make its railroads operate more like businesses, abolishing the government departments that had long run the nation’s trains and then launching China State Railway in 2019.

A drive to slash overhead helped China State Railway turn a roughly $460 million profit last year after losing close to $25 billion from 2020 to 2022 during the pandemic. Its results last year were boosted by more than $1 billion in “other income,” a line item in China that typically includes state subsidies.

Some of its two dozen major operating units are facing serious difficulties. Its biggest subsidiary, based in Sichuan, lost $1 billion in 2023 as it expanded in rural areas and smaller cities inland.

China State Railway and the Ministry of Finance didn’t respond to requests for comment. The company’s chief accountant has previously said that it takes its debt issues seriously and that the financial risks are manageable, highlighting the quality of its assets.

Efforts to boost profitability are constrained by a desire to keep ticket prices low, which builds goodwill for Xi and the government. A study by Chinese academics last year found that prices for high-speed rail tickets in China were less than a quarter of the average cost of such tickets globally.

The trains have become a point of national pride for many people, including Zhang Jianbo, who emerged from Fushun Station on a recent morning after a business trip with his wife to Chengdu. Had he driven, his $13 ticket for the trip of over 130 miles wouldn’t have covered the highway tolls, let alone pay for gas.

Many Chinese resist higher ticket prices, viewing the network as a public service. When China State Railway announced price hikes of as much as 20% for a few lines earlier this year, a torrent of online criticism followed.

Altogether last year, travelers took 3.7 billion trips on the nation’s railways, including both high-speed and traditional slower trains.

Zhao, the Beijing-based scholar, has said many lines in China were running fewer than 16 pairs of trains daily in both directions, a fraction of their capacities. While China State Railway reported ridership growth of 18% in the first half of 2024 compared with a year earlier amid a domestic tourism boom, its operating revenues were practically flat over the same period.

Double routes

The early build-out of high-speed rail, under Xi’s predecessor Hu Jintao, sought to link China’s biggest and richest cities, using technologies imported from Japan and Europe.

The Beijing-to-Shanghai route, opened in 2011, has thrived. A listed unit of China State Railway running service between the cities had profits of more than $1.5 billion last year.

China is now practically duplicating some routes. High-speed trains have operated for years between the inland cities of Chongqing and Kunming, a journey that takes about five hours. China State Railway says a new $20 billion line being built between the cities, following a different path, will cut travel time to about two hours, while supporting the regional economy and promoting national unity.

That route will soon bring high-speed trains to Sichuan’s Gao County, south of Fushun, for the first time. In the county seat, property developers are erecting new apartment blocks in a district that will be home to its high-speed rail station.

Gao County’s population of about 375,000, including many pig farmers and grain growers, has shrunk nearly 10% since 2019 as locals sought work elsewhere. Per capita economic output is two-thirds of the national level.

The area doesn’t lack connectivity. High-speed trains run through the city of Yibin, 40 minutes north. The 20 million-person metropolis of Chengdu is reachable in about two hours.

The bigger issue for Gao County, and the residents of its 200 villages, is a lack of jobs.

“If you’re hardworking and want to make more money, you’ve got to find work on the outside,” said one villager whose home and plot of farmland sits in the shadow of the new line’s elevated tracks. She said officials promised her the trains that will soon zip by won’t be too noisy.

In nearby Luojia Village, the line’s construction has hastened the community’s decline, residents said, as the government requisitioned land for tracks and for another infrastructure project upgrading the local waterworks.

“More and more people have gone elsewhere,” said 62-year-old Hu Mingqun, who runs a village health center with her husband. “Those who stay at home to farm don’t make much money because their land has shrunk.”

Still, Hu said she enjoyed taking the high-speed rail to visit her daughter in another province, and trusted that the system would ultimately make life in China better.

US biotech 23andMe hits new lows as Sequoia Capital sells down stake

Former investors and board members reduce holdings in the once much-hyped genetics-testing group

Genetics-testing company 23andMe has lost almost a third of its value over the past week as former investors and board members, including Sequoia Capital, sold shares in the once much-hyped Silicon Valley group.

The California-based group has been fighting for survival amid doubts over its business model, disputes with investors and growing concern over who owns its vast database of genetic data. Its entire board of independent directors, including Sequoia chief Roelof Botha, resigned in September.

Sequoia, which led 23andMe’s $250mn private funding round in 2017, said in filings on Friday that it planned to sell more than 300,000 of the company’s shares, a stake now worth just over $1mn.

Sequoia’s holdings, which were worth tens of millions of dollars three years ago, have plunged in value as 23andMe’s shares have dropped more than 98 per cent since the company went public via a merger with a blank-cheque company in June 2021.

Peter Taylor, one of the board members who resigned in September, also filed to sell about 18,800 shares. Taylor, who joined the company in June 2021, was president of the non-profit ECMC Foundation until last year.

The share sales come after 23andMe warned last week that there was “substantial doubt” over its continued survival unless it raises new funds.

The warning came as the struggling group reported a seventh consecutive year-on-year decline in quarterly revenues amid slowing demand for its DNA test “spit kits”. 23andMe has never reported a net profit, and has plunged in value from a peak of $5.8bn in 2021 to less than $100mn.

Founder and chief executive Anne Wojcicki has been racing to rescue the company. Last week 23andMe announced plans to cut 40 per cent of its workforce as part of an aggressive restructuring plan intended to deliver annualised cost savings of $35mn.

The group will also halt all efforts to develop new medicines — ending Wojcicki’s long-held ambition to turn the business into a drug development company. It will instead focus exclusively on selling genetic tests to consumers and marketing the resulting data to external drug developers.

Wojcicki has been trying to take the company private at just 40 cents per share, a fraction of the $10-a-share price it floated at in 2021 — a move that helped trigger the board resignations in September.

In their resignation letter, the former directors said Wojcicki had been unable to make a “fully financed proposal” and said her “concentrated voting power” left them with few other options.

23andMe had to rush to appoint new directors in late October to meet the governance requirements of its listing.

The company last month completed a reverse stock split — in effect boosting the price of individual shares by reducing the number in issue — in order to push its shares above the Nasdaq’s $1 minimum price and retain its listing. It risks violating these requirements again if its shares, which have almost halved since the stock split in October, continue to fall.

While insiders have sold shares as the company’s valuation plummets, Zentree Investments, a small fund based in Singapore, last week disclosed in filings that it had built a 5 per cent stake in 23andMe.

Richard Magides, the fund’s director, said he supported “an aggressive restructuring” of 23andMe and welcomed the announcement it was shutting its “notoriously expensive” drug discovery business.

“There is no doubt in our minds that the core business does offer value to both customers and data users,” said Magides. “With a much leaner, focused business model it could chart a path to profitability and organic growth.”

French asset manager Tikehau may join march for New York listing

An increasing number of European companies are looking past home exchanges to more liquid markets in US

Tikehau, one of Europe’s fastest-growing investment managers, is considering moving its listing to New York from Paris, making it the latest in a series of European and UK companies looking beyond the exchanges in their home countries.

The €47.1bn alternative asset manager, which is particularly strong in private credit, was founded in 2004 and has been listed on Euronext Paris since 2017. Founders Mathieu Chabran and Antoine Flamarion have long expressed ambitions to build a “Blackstone of Europe”.

They told the Financial Times on Tuesday they were considering moving their listing or seeking a secondary listing in New York to tap more liquid US markets, and to boost their brand at a time when money management was consolidating and individual customers were supplanting institutional investors as the most important source of growth. 

“Building the brand takes a lot of time and energy. If you get listed in the US, because finance has been invented here, it probably makes sense to do it from a brand perspective,” Flamarion said.

“We are spending time on” whether to go for a primary listing in the US or add a secondary listing in New York, said Chabran, who has been based in New York since 2018.

They have plenty of company. Swedish fintech Klarna recently filed for a US initial public offering and French oil major TotalEnergies said in April that it was seriously considering moving its listing to New York. Two European companies supplying products and services into the fast-growing US energy market, Switzerland’s Landis + Gyr and Italy’s Prysmian, have also told the FT they are evaluating New York listings. 

This year, record highs for US stock markets have helped companies raise more than $30bn by floating in New York, including $1.8bn for Switzerland-headquartered Viking Cruises, compared with less than $18bn for groups listing in Europe, according to data from Dealogic. Last year, two of the three biggest US IPOs were UK-based chip designer Arm Holdings and German fashion group Birkenstock.

In an effort to boost the appeal of Europe, exchange operator Euronext this month said it planned to create a single US-style prospectus across its seven bourses to simplify the listing process. France has been advocating deeper capital markets integration across the EU to rival the US, but efforts have floundered.

Tikehau, named after a Pacific coral atoll in French Polynesia, is behind rival French alternatives firm Ardian, which has $176bn in assets under management. But Tikehau has been striking deals and partnerships to expand its reach and fuel international expansion. It had 17 offices and 767 employees as of September 30.

Last year the firm secured €400mn in backing from two of the founding families of beer giant AB InBev, who became indirect minority shareholders of Tikehau Capital, the listed entity. It also signed a strategic partnership with Nikko Asset Management, one of Asia’s largest asset managers, that included a distribution agreement for Nikko to sell Tikehau’s products in Asia.

Tikehau has €3.1bn of equity on its balance sheet as of June 30, which it uses to invest alongside clients in each of its strategies. The company’s founders, management and strategic investors, which include Temasek and Morgan Stanley, collectively own 74 per cent of the listed entity.

Prysmian also sees the US market as a stronger driver of growth than Europe and is working to overcome some technical legal barriers in Italy that would make a dual listing tricky. Massimo Battaini, its chief executive, said the company wanted to boost its presence and exposure in the US. 

“With the exposure and the growth rate that we see in the US in the next few years we can benefit from a dual listing,” he said in an interview.  

Justin Sun, founder of blockchain network Tron, outbids six others for Maurizio Cattelan’s ‘Comedian’

A cryptocurrency entrepreneur paid $6.24mn for a banana taped to a wall at a contemporary art auction in New York, more than four times its presale estimate.

Maurizio Cattelan’s “Comedian”, a banana stuck to a wall with duct tape, was sold to Justin Sun, the founder of cryptocurrency platform Tron, on Wednesday evening.

Sun outbid six others at a Sotheby’s New York auction to purchase the banana at a much higher price than its presale estimate of $1mn to $1.5mn.

The entrepreneur said on Wednesday that “Comedian” is “not just an artwork; it represents a cultural phenomenon that bridges the worlds of art, memes, and the cryptocurrency community”.

He added that he planned to eat the banana in the “coming days . . . as part of this unique artistic experience, honouring its place in both art history and popular culture.”

Sun’s Tron blockchain network facilitates a large volume of the world’s USDT stablecoin transactions. In March last year, the entrepreneur proposed buying collapsed Swiss investment bank Credit Suisse for $1.5bn to “integrate it into the Web3.0 world”.

The same month, he was sued by the US Securities and Exchange Commission for fraudulently inflating the trading volumes of TRX, Tron’s crypto token. Sun denies the charges.

In the packed auction room on Wednesday, a crowd of people craned their necks and tried to take photos of the banana, which a Sotheby’s auctioneer described as “disruptive” and urged the crowd not to let the opportunity “slip away”. The bidding lasted just over six minutes.

The $6.24mn sale marked the first time that “Comedian” had appeared at auction, after first making a splash at Miami’s Art Basel fair in 2019 before travelling the world. The banana is one of an edition of three alongside two artist proofs.

Sotheby’s said that the buyer would receive an accompanying certificate of authenticity signed by the artist.

The banana sale comes as Sotheby’s and other auction houses have tested demand this week for multimillion dollar auctions, as a chill in the art market has hit brokers. In August, Sotheby’s posted an 88 per cent drop in its core earnings for the first half and a 25 per cent decline in auction sales.

Cryptocurrency prices have soared in recent weeks, as investors bet that the administration of US president-elect Donald Trump will be positive for the industry.

Bitcoin alone has hit a series of record highs since the November 5 election and was trading at more than $94,000 on Wednesday evening in New York.

Other pieces sold by Sotheby’s this week include a $65.5mn Monet water lily painting. This year, the auction house also sold a 150mn-year-old stegosaurus fossil known as “Apex”, which was bought by Citadel hedge fund founder Ken Griffin for $44.6mn.

CMA chief says agency is very aware that boosting the economy is an important part of its mandate

The UK’s competition watchdog will explore waving through more company mergers without forcing businesses to sell assets, weeks after Sir Keir Starmer claimed the agency was holding back Britain’s growth. 

The Competition and Markets Authority will hold a review in the new year into whether it should more frequently use “behavioural remedies” when approving deals, chief executive Sarah Cardell will say in a speech on Thursday. 

These can include investment commitments or mandatory price freezes, but typically offer weaker consumer protection than traditional requirements that companies sell part of the merged business. 

The review will come as the CMA tries to defuse criticism from the prime minister that it is stifling British growth, after Starmer told global executives last month that he wants to “make sure that every regulator in this country, especially our economic and competition regulators, takes growth as seriously as this room does”. 

Ahead of her speech at Chatham House on Thursday, Cardell defended the agency’s record on “supporting productive and sustainable growth”. 

“When we set our own strategic priorities back at the start of 2023 . . . we made clear that supporting productive and sustainable growth across the whole of the UK economy was a key priority for the CMA,” she told the Financial Times. 

It is “not a surprise to me at all that the government should be looking to the CMA, as it’s looking to other regulators, to be supporting that growth mission”, she added. 

She stressed that plans for next year’s review — which will also look at whether sectors with regulators could be more open to behavioural remedies — were in place before Starmer’s recent criticisms.

The agency is widely expected to clear the £16.5bn merger between Vodafone and CK Hutchison’s Three UK in the coming weeks, on the condition that the combined group commits to behavioural remedies that include spending £11bn upgrading their UK network, and retaining certain customer tariffs for a period.

The decision would be a departure from its historical approach that requires companies to offload assets before a deal is approved. UK regulator Ofcom would be responsible for ensuring the companies’ fulfil their commitments.

Cardell cautioned that she did not “think the approach to the Vodafone Three merger . . . should be taken as an indication of a sort of fundamental change of approach”, despite the review that will take place next year. 

The CMA has taken on a more significant role in shaping the UK market since Brexit, including having oversight of the largest corporate deals in Britain.

It came under fire last year over its handling of Microsoft’s $75bn acquisition of Activision Blizzard. 

While the regulator ultimately approved the video games industry’s biggest-ever deal, the agency and Cardell faced criticism from business leaders, dealmakers and legal advisers for its initial move to block the tie-up.

Cardell said the Microsoft outcome shows that growth can be maintained with the right remedies, which allows a deal to progress while maintaining competition.

Of the roughly 50,000 deals announced in the 12 months to March 2024, the CMA conducted initial phase one investigations into 54, Cardell said. Of those, only nine moved to a more in-depth phase two probe and one merger — the Microsoft-Activision deal — was initially blocked.

However, she said the CMA is also taking steps to engage better with business across sectors including venture capitalists and the private equity industry, which may involve greater use of secondments.

Next year, the regulator will name certain tech businesses as having “strategic market status” under new laws. This means they will be subject to certain conduct rules to ensure fair market behaviour.

The companies must have “substantial and entrenched market power”, and are expected to apply to a handful of Big Tech companies.

But she stressed the new rules are not “just about regulating Big Tech”.

She added: “It’s about ensuring that the major players in digital markets are able to continue to play the critical role that they do in the UK economy in terms of driving innovation, bringing in investment, but that they can do that alongside creating opportunities for the smaller players.”

AI chip giant gives strong outlook, pointing to healthy demand for next-generation chips

Nvidia’s NVDA -0.76%decrease; red down pointing triangle sales surged in its latest quarter and profits nearly doubled, a sign of the strength of an artificial intelligence boom that has made the company the world’s most valuable.

Nvidia on Wednesday also projected around $37.5 billion of revenue for its current quarter, topping forecasts and suggesting its next-generation AI chips, known as Blackwell, are in high demand from customers like Microsoft, Google, Meta and Elon Musk’s xAI.

The company, whose chips have powered the rise of AI technology, said it expects the Blackwell chips to ship in the current quarter and be in short supply into its next fiscal year.

Sales were $35.1 billion in the fiscal third quarter, the company said, up 94% from a year prior and ahead of forecasts in a FactSet survey of analysts. Profit reached $19.3 billion, also ahead of Wall Street forecasts.

Nvidia Chief Executive Jensen Huang said in a release that demand for its current generation of chips and for Blackwell was “incredible” as leading AI developers scale up their computing infrastructure.

Nvidia’s shares fell 2% in after-hours trading, however, with the results falling short of some investors’ expectations following several quarters of sky-high revenue and profits.

Nvidia’s market capitalization has increased by $2.36 trillion in 2024 through Wednesday’s close, greater than the entire current value of Google parent Alphabet.

Led by Huang since its founding in 1993, Nvidia has engineered a stunning rise to the top of the semiconductor world over the past two years. Nvidia’s chips—initially developed to improve computer graphics—were well-suited to AI tasks and big tech companies began investing tens of billions of dollars to build advanced AI tools.

So hot was the demand that Nvidia couldn’t keep up with it, and its chips became the most coveted products in the tech industry.

Huang’s tech celebrity rose into a stratosphere occupied by visionaries like the late Apple co-founder Steve Jobs. Revenue and profits rose to unprecedented levels, and the stock surged, roughly tripling this year alone. It hit a $2 trillion valuation in February, crossed the $3 trillion mark in June, and reclaimed the title of world’s most valuable company earlier this month.

Analysts had been expecting a strong quarter for Nvidia following earnings reports from big tech companies that outlined rising capital spending. With the AI boom, much of the tech giants’ spending goes toward Nvidia’s chips.

The company’s rise has come with complications. In its previous earnings report in August, Nvidia blamed engineering issues with Blackwell chips for narrower profit margins and a $908 million provision. Despite the hiccup, the company has stuck to an expectation that Blackwell will bring in several billion dollars of revenue in its current quarter, which ends in January.

Nvidia Chief Financial Officer Colette Kress said in prepared remarks Wednesday that the company had completed tweaks in Blackwell’s design that improved their manufacturing yields. She said production shipments were expected in the current quarter, and that demand was expected to exceed supply for several quarters in its next fiscal year.

Nvidia’s increased size over the last two years means it is getting harder for the company to sustain its dramatic revenue growth rates. Revenue more than tripled in its quarter ended in April, but has lost pace in the two quarters since.

Nvidia is also being challenged by rivals including Advanced Micro Devices, which expects to sell $5 billion of AI chips this year, and by a crop of AI chip startups offering newfangled approaches to the computations that underlie the most advanced AI models. Some of its biggest customers, including Amazon.com and Google, also have been working to develop their own AI chips and reduce dependence on Nvidia.

And antitrust regulators in Europe and the U.S. are looking closely at Nvidia’s business given its dominance in the market: Analysts estimate it has more than an 80% share in AI chips.

To keep its edge, Nvidia is leaning into new markets and uses for its chips, including drug-discovery applications, humanoid robots and a push by countries to invest in national AI infrastructure. Nvidia expects so-called sovereign AI investments to add $10 billion to its sales this year from zero last year.