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For years, Apple has had a bumpy relationship with Nvidia. But the iPhone maker’s AI ambitions are testing how completely it can shun investments in Nvidia’s products.

Like most big tech companies with artificial intelligence ambitions, Apple has little choice but to use chips from Nvidia, whose graphics processing units are practically a de facto standard in the development and running of AI software. But Apple is working on ways to spend less on Nvidia chips without undermining its success in AI.

Instead of buying boatloads of Nvidia chips as its tech peers do, the iPhone maker mostly rents access to them from cloud providers like Amazon and Microsoft. In some cases—for example, to train its biggest models—Apple has rented AI chips designed in-house by Google rather than Nvidia. And in its boldest move yet to avoid relying on Nvidia, Apple is working with Broadcom to design an AI server chip expected to be ready for mass production by 2026, news of which The Information first reported earlier this month.

Apple’s Nvidia allergy appears to stem partly from its frugality and a desire to own and control the key technological ingredients for its products to avoid giving others leverage over its operations. But leaders within Apple have also quietly nursed grudges against Nvidia for nearly two decades, stemming from business disputes that originated during the era when Steve Jobs was Apple’s CEO, according to 10 former Apple and Nvidia employees with direct knowledge of the relationship.

In 2001, for example, the two companies forged a major partnership when Apple included Nvidia’s chips in its Macs to give the computers better graphics capabilities. At the time, Jobs told a packed audience at an event in Tokyo that they had a “great relationship.”

Behind the scenes, though, their dealings were tense. In a meeting around that time between Jobs and a senior Nvidia executive, the Apple CEO remarked that Nvidia products contained technology copied from Pixar, the computer animation studio Jobs then led and had a controlling stake in.

The Nvidia executive pushed back on the idea, saying Nvidia held more graphics patents than Pixar and should sue the animator instead. For the remainder of the meeting, Jobs pretended the Nvidia executive was no longer in the room, according to a person who witnessed the incident.

Analysts say some of Nvidia’s biggest customers by revenue include Google, Microsoft, Amazon, Meta Platforms and Tesla. Apple, despite its size and reach, isn’t even among Nvidia’s top 10 customers, they say. Some of that reflects the nature of the business Apple is in.

Unlike Google, Microsoft and Amazon, Apple doesn’t sell cloud computing services to other companies, so it doesn’t have to satisfy demand from clients who want access to Nvidia chips. (All three of those cloud providers have designed their own AI chips as well, though the response from customers has been mixed in some cases.) Meanwhile, for companies like Meta, OpenAI and Tesla, AI is becoming or is already a more fundamental part of their businesses.

It’s unclear whether Apple will be able to hold off indefinitely on making big purchases of Nvidia chips. The company has scrambled this year to respond to the rise of AI applications, such as OpenAI’s ChatGPT, by weaving new AI features into products like the iPhone.

But Apple has been compelled to provide customers with the option to use ChatGPT for tasks its own models still can’t handle. This has put pressure on the company to train bigger and better models, which would require even more access to high-end GPUs.

This year, Wall Street analysts have focused on the possibility that Apple might need to spend a lot more on AI than it has been. They’ve been badgering Apple CEO Tim Cook about whether the company plans to increase investments in data centers and chips to be more competitive.

Cook has downplayed claims that Apple’s AI features will significantly increase the company’s costs, telling analysts some of the expenditures will be borne by the third-party cloud providers it rents servers from. Still, Apple’s work with cloud providers doesn’t come cheap: The company ranks No. 1 in The Information’s database of cloud spenders, with billions of dollars in estimated annual cloud bills.

Spokespeople for Apple and Nvidia declined to comment.

A Demanding Customer

The chilly relations between Apple and Nvidia continued after the tense 2001 meeting between Jobs and the Nvidia executive.

In subsequent years, Nvidia executives viewed Apple as a demanding customer that had unreasonable expectations given the small size of its Mac sales relative to Windows personal computers, said former Apple and Nvidia employees with direct knowledge of the relationship. Nvidia CEO Jensen Huang, in particular, was unwilling to dedicate a lot of resources to the partnership with Apple, given how little revenue Nvidia received from it, according to people familiar with his thinking.

At the same time, Apple was then in the midst of a comeback with the success of the iPod and was becoming accustomed to getting its way with suppliers, the former Apple employees said. It saw Nvidia as especially difficult to work with.

Nvidia chips were power hungry and generated lots of heat, both of which made it difficult for Apple to include the chips in its laptop designs. Apple wanted Nvidia to build custom graphics chips for its MacBooks but grew frustrated by its unwillingness to do so, multiple former Apple employees said.

Another one of Apple’s frustrations: The company’s engineers spent months trying to persuade Nvidia to send engineers to China to debug its graphics chips as Macs came off a production line. They also had to twist Nvidia’s arm to write software that would allow Apple to test Nvidia chips on Macs rather than Windows PCs, according to a former Apple employee.

‘Bumpgate’

One of the biggest flashpoints in their relationship occurred in 2008, when Nvidia produced a faulty graphics chip that ended up inside computers from Apple, Dell and Hewlett-Packard. The problem came to be known as bumpgate because it involved balls of lead-based solder called bumps that were overheating and causing parts of the chip to crack, leading to graphics failures.

Initially, Nvidia refused to take responsibility for the problem and wouldn’t fully reimburse Apple and other PC makers for repairs, former Apple and Nvidia employees with direct knowledge of the issue said. Apple was forced to extend warranty coverage for certain MacBooks with the faulty chips and was unable to get full compensation from Nvidia, which upset Jobs and other executives, according to former Apple employees.

From Nvidia’s perspective, the company had no contractual obligation that required it to make Apple whole, according to a former Nvidia executive with direct knowledge of the issue.

The dispute played a role in Apple’s decision to switch to another supplier: AMD, whose graphics chips didn’t perform as well as Nvidia’s. Apple had more leverage over pricing with AMD and also was able to persuade it to design custom chips for its MacBooks. Unlike Nvidia, AMD accommodated Apple because it was eager to win its business, according to former Apple and AMD employees.

Nvidia’s unwillingness to bend over backward for Apple might have been justified, as later events showed. By 2018, Apple was spending only around $200 million annually with AMD to supply GPUs for its computers—a fraction of the nearly $6.5 billion AMD earned in revenue that year, according to a person with direct knowledge of the figure. And in 2020, Apple began phasing out its use of AMD GPUs, releasing its first MacBook with a GPU it had designed in-house.

Licensing War

Apple executives also clashed with Nvidia in its attempts to demand licensing fees for Apple’s use of graphics chips on mobile devices like the iPhone.

In the early 2010s, Samsung, Qualcomm and Apple were either using their own designs for the mobile GPUs in their smartphones or licensing technology from mobile GPU designers such as Imagination Technologies.

Huang believed many of the techniques used to render graphics were based on patents Nvidia owned for GPUs inside computers, so the company began approaching Apple, Samsung and others to demand they start paying licensing fees for its mobile GPUs, according to court documents and former Apple and Nvidia employees familiar with the matter.

Nvidia’s initial request for a licensing fee incensed Apple’s top leaders—especially Dan Riccio, the company’s former senior vice president of hardware engineering. That further soured Apple on using Nvidia’s products, according to multiple former Apple employees. Apple didn’t agree to the demand, two former Apple employees said.

Eventually, Nvidia sued Samsung and Qualcomm in 2014 for violating its patents and asked the U.S. International Trade Commission to block shipments of Samsung’s mobile phones and tablets into the U.S. The company likely hoped to use victories in the cases as leverage against Apple, according to current and former Nvidia executives.

Instead, Nvidia lost the ITC case against Samsung and ultimately settled its court cases against that company and Qualcomm.

Self-Driving Chip

Around 2015, when Apple began developing a self-driving car, one component was conspicuously absent from it: an Nvidia GPU.

Instead, the company’s top leaders decided to design their own chip for the vehicles to handle inference, the object recognition and decision-making trained AI models perform—in this case, to autonomously pilot a car. At the time, Nvidia’s chips were the industry standard in autonomous vehicles.

Apple used its chip, code-named Tinos, in dozens of test vehicles, some of which could contain as many as 16 chips, each running different AI models to help with self-driving, said four former Apple employees who worked on its self-driving–car program.

Apple couldn’t entirely avoid Nvidia chips, though: Its engineers still needed them to train the AI models for its autonomous systems, renting them through Amazon’s cloud computing service, one of the people said. At one point, Apple was Amazon’s largest customer for renting Nvidia GPUs in North America, the person said.

Apple ultimately scrapped the car project earlier this year, moving many of its AI engineers to work on Apple Intelligence, the family of AI features in iPhones and other devices.

Google Versus Nvidia

In 2018, when Apple hired John Giannandrea to lead a new organization for AI and machine learning within the company, one of the first things his new team asked for was more Nvidia GPUs to assist with training AI models.

Prior to his arrival, Apple had purchased a small number of its own Nvidia GPUs for AI training that were scattered throughout different parts of the company, including the teams that developed Apple’s Face ID facial recognition system and the chip design team, which used Nvidia chips to simulate iPhone chip performance. The scarcity of the Nvidia chips meant employees faced long wait times to get access to them.

Giannandrea, who had previously worked at Google, instead encouraged the use of an AI chip Google had designed in-house called a tensor processing unit, said multiple current and former Apple employees involved in AI. Google had developed the processor in the mid-2010s in part to reduce its dependence on Nvidia. In the years to come, Apple trained some of its largest and most important models using Google TPUs rather than Nvidia chips, it said in a research paper it published earlier this year.

The decision partly reflected the pedigree of much of Giannandrea’s team, many members of whom had previously worked at Google and were familiar with using the TPUs for machine learning, the former Apple employees said. But it also was partly due to a shortage of Nvidia GPUs over the past two years, as they are in high demand among customers who rent or purchase them to train AI models, some of the employees said.

This month, Apple said it was evaluating Amazon’s in-house–designed AI chips for training as well.

Still, relying on Google and Amazon for AI chips could over time just make Apple dependent on a different set of companies. Apple’s solution is to build its own AI chip to power its internal servers, an unusual move for a company so focused on designing chips for consumer devices.

Recently, there have been some signs that Apple’s relationship with Nvidia isn’t entirely acrimonious. In March, Huang briefly featured Apple’s Vision Pro mixed reality headset during a presentation on Nvidia’s 3D software tools. Last week, Nvidia and Apple announced that they had collaborated on a research project that sped up the operation of large language models on Nvidia chips.

And while Apple executives have historically expressed frustration with Nvidia, current and former Nvidia executives and employees describe it as a mostly one-sided beef. Nvidia executives remain open to collaboration and believe Apple could become a significant customer in the future, current Nvidia executives say.

However, other signs suggest Apple is exploring ways to keep its distance from Nvidia. This summer, Apple freed up some chip engineers in Israel after canceling a high-end Mac chip, redirecting them to work on the new AI server chip, code-named Baltra after a small island in the Galápagos, The Information previously reported.

The involvement of Broadcom in that effort suggests Apple might be interested in eventually using the chip for training models in addition to inference. That’s because one of Broadcom’s strengths is in chip networking, which involves linking chips so they can work fast and in unison, a major requirement for training AI models.

Such an effort would further reduce Apple’s need to buy or rent training chips from Nvidia, along with Google and Amazon.

The government wants all new cars and vans to be 100% zero-emission by 2035 with no new gasoline or diesel cars sold after 2030

The U.K. government is calling on the car industry for its views on how to deliver on a plan to phase out gasoline and diesel cars and transition to zero-emission vehicles from 2030.

U.K. Transport Secretary Heidi Alexander said Tuesday that she is seeking the industry’s views on how to end the sale of new cars with combustion engines from 2030, and potential requirements for new non-zero emission vans to be sold from 2030 to 2035.

The government wants all new cars and vans to be 100% zero-emission by 2035 with no new gasoline or diesel cars sold after 2030.  

The consultation will be open until Feb. 18.

Borrowers turn to distressed exchanges in the face of punitive interest rates

US companies are defaulting on junk loans at the fastest rate in four years, as they struggle to refinance a wave of cheap borrowing that followed the Covid pandemic.

Defaults in the global leveraged loan market — the bulk of which is in the US — picked up to 7.2 per cent in the 12 months to October, as high interest rates took their toll on heavily indebted businesses, according to a report from Moody’s. That is the highest rate since the end of 2020.

The rise in companies struggling to repay loans contrasts with a much more modest rise in defaults in the high-yield bond market, highlighting how many of the riskier borrowers in corporate America have gravitated towards the fast-growing loan market.

Because leveraged loans — high yield bank loans that have been sold on to other investors — have floating interest rates, many of those companies that took on debt when rates were ultra low during the pandemic have struggled under high borrowing costs in recent years. Many are now showing signs of pain even as the Federal Reserve brings rates back down.

“There was a lot of issuance in the low interest rate environment and the high rate stress needed time to surface,” said David Mechlin, credit portfolio manager at UBS Asset Management. “This [default trend] could continue into 2025.”

Punitive borrowing costs, together with lighter covenants, are leading borrowers to seek other ways to extend this debt.

In the US, default rates on junk loans have soared to decade highs, according to Moody’s data. The prospect of rates staying higher for longer — the Federal Reserve last week signalled a slower pace of easing next year — could keep upward pressure on default rates, say analysts.

Many of these defaults have involved so-called distressed loan exchanges. In such deals, loan terms are changed and maturities extended as a way of enabling a borrower to avoid bankruptcy, but investors are paid back less.

Such deals account for more than half of defaults this year, a historical high, according to Ruth Yang, head of private market analytics at S&P Global Ratings. “When [a debt exchange] impairs the lender it really counts as a default,” she said.

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“A number of the lower rated loan-only companies that could not tap public or private markets had to restructure their debt in 2024, resulting in higher loan default rates than those of high-yield bonds,” Moody’s wrote in its report.

Portfolio managers worry that these higher default rates are the result of changes in the leveraged loan market in recent years.

“We’ve had a decade of uncapped growth in the leveraged loan market,” said Mike Scott, a senior high yield fund manager at Man Group. Many of the new borrowers in sectors such as healthcare and software were relatively light on assets, meaning that investors were likely to recover a smaller slice of their outlay in the event of a default, he added.

“[There has been] a wicked combination of a lack of growth and a lack of assets to recover,” thinks Justin McGowan, corporate credit partner at Cheyne Capital.

Despite the rise in defaults, spreads in the high-yield bond market are historically tight, the least since 2007 according to Ice BofA data, in a sign of investors’ appetite for yield.

“Where the market is now, we are pricing in exuberance,” said Scott.

Still, some fund managers think the spike in default rates will be shortlived, given that Fed rates are now falling. The US central bank cut its benchmark rate this month for the third meeting in a row.

Brian Barnhurst, global head of credit research at PGIM, said lower borrowing costs should bring relief to companies that had borrowed in the loan or high-yield bond markets.

“We don’t see a pick-up in defaults across either asset class,” he said. “To be honest, that relationship [between leveraged loans and high-yield bond default rates] diverged probably in late 2023.”

But others worry that distressed exchanges hint at underlying stresses and only put off problems until a later date. “[It’s] all well and good kicking the can down the road when that road goes downhill,” noted Duncan Sankey, head of credit research at Cheyne, referring to when conditions were more favourable for borrowers.

Some analysts blame loosening credit restrictions in loan documentation in recent years for allowing an increase in distressed exchanges that hurt lenders.

“You can’t put the genie back in the bottle. Weakened [documentation] quality has really changed the landscape, in favour of the borrower,” said S&P’s Yang.

Elon Musk’s xAI lands $6B in new cash to fuel AI ambitions

xAI, Elon Musk’s AI company, has raised $6 billion, according to a filing with the U.S. Securities and Exchange Commission on Thursday.

Investors gave a minimum of $77,593, per the filing (97 participated, but the document doesn’t reveal their identities). xAI later announced (confirming some earlier reporting) that Andreessen Horowitz , Blackrock, Fidelity, Kingdom Holdings, Lightspeed, MGX, Morgan Stanley, OIA, QIA, Sequoia Capital, Valor Equity Partners, Vy Capital, Nvidia, AMD, and others numbered among them.

The new cash brings xAI’s total raised to $12 billion, adding to the $6 billion tranche xAI raised this spring. CNBC reported in November that xAI was aiming for a $50 billion valuation — double its valuation of six months prior.

According to the Financial Times, only investors who’d backed xAI in its previous fundraising round were permitted to participate in this one. Reportedly, investors who helped finance Musk’s Twitter acquisition were given access to up to 25% of xAI’s shares.

Ramping up AI

Musk formed xAI last year. Soon after, the company released Grok, a flagship generative AI model that now powers a number of features on X, including a chatbot accessible to X Premium subscribers and free users in some regions.

Grok has what Musk has described as “a rebellious streak” — a willingness to answer “spicy questions that are rejected by most other AI systems.” Told to be vulgar, for example, Grok will happily oblige, spewing profanities and colorful language you won’t hear from ChatGPT.

Musk has derided ChatGPT and other AI systems for being too “woke” and “politically correct,” despite Grok’s own unwillingness to cross certain boundaries and hedge on political subjects. He’s also referred to Grok as “maximally truth-seeking” and less biased than competing models, although there’s evidence to suggest that Grok leans to the left.

Over the past year, Grok has become increasingly ingrained in X, the social network formerly known as Twitter. At launch, Grok was only available to X users — and developers skilled enough to get the “open source” edition up and running.

Thanks to an integration with the open image generator Flux, Grok can generate images on X (without guardrails, controversially). The model can analyze images as well, and summarize news and trending events (imperfectly, mind).

Reports indicate that Grok may handle even more X functions in the future, from enhancing X’s search capabilities and account bios to helping with post analytics and reply settings.

xAI is sprinting to catch up to formidable competitors like OpenAI and Anthropic in the generative AI race. The company launched an API in October, allowing customers to build Grok into third-party apps, platforms, and services. And it just launched a standalone Grok iOS app to a test audience.

Musk asserts that it hasn’t been a fair fight.

In a lawsuit filed against OpenAI and Microsoft, OpenAI’s close collaborator, attorneys for Musk accuse OpenAI of “actively trying to eliminate competitors” like xAI by “extracting promises from investors not to fund them.” OpenAI, Musk’s counsel says, also unfairly benefits from Microsoft’s infrastructure and expertise in what the attorneys describe as a “de facto merger.”

Yet Musk often says that X’s data gives xAI a leg up compared to rivals. Last month, X changed its privacy policy to allow third parties, including xAI, to train models on X posts.

Musk, it’s worth noting, was one of the original founders of OpenAI, and left the company in 2018 after disagreements over its direction. He’s argued in previous suits that OpenAI profited from his early involvement yet reneged on its nonprofit pledge to make the fruits of its AI research available to all.

An xAI ecosystem

xAI has outlined a vision according to which its models would be trained on data from Musk’s various companies, including Tesla and SpaceX, and its models could then improve technology across those companies. It is already powering customer support features for SpaceX’s Starlink internet service, according to The Wall Street Journal, and the startup is said to be in talks with Tesla to provide R&D in exchange for some of the carmaker’s revenue.

Tesla shareholders, for one, object to these plans. Several have sued Musk over his decision to start xAI, arguing that Musk has diverted both talent and resources from Tesla to what’s essentially a competing venture.

Nevertheless, the deals — and xAI’s developer and consumer-facing products — have driven xAI’s revenue to around $100 million a year. For comparison, Anthropic is reportedly on pace to generate $1 billion in revenue this year, and OpenAI is targeting $4 billion by the end of 2024.

Musk said this summer that xAI is training the next generation of Grok models at its Memphis data center, which was apparently built in just 122 days and is currently powered partly by portable diesel generators. The company hopes to upgrade the server farm, which contains 100,000 Nvidia GPUs, next year; in its press release, xAI said it plans to fully double that number. (Because of their ability to perform many calculations in parallel, GPUs are the favored chips for training and running models.)

In November, xAI won approval from the regional power authority in Memphis for 150MW of additional power — enough to power roughly 100,000 homes. To win the agency over, xAI pledged to improve the quality of the city’s drinking water and provide the Memphis grid with discounted Tesla-manufactured batteries. But some residents criticized the move, arguing it would strain the grid and worsen the area’s air quality.

Tesla is also expected to use the upgraded data center to improve its autonomous driving technologies.

xAI has expanded quite rapidly from an operations standpoint in the year since its founding, growing from just a dozen employees in March 2023 to over 100 today. In October, the startup moved into OpenAI’s old corporate offices in San Francisco’s Mission neighborhood.

xAI has reportedly told investors it plans to raise more money next year.

It won’t be the only AI lab raising immense cash. Anthropic recently secured $4 billion from Amazon, bringing its total raised to $13.7 billion, while OpenAI raised $6.6 billion in October to grow its war chest to $17.9 billion.

Megadeals like OpenAI’s and Anthropic’s drove AI venture capital activity to $31.1 billion across over 2,000 deals in Q3 2024, per PitchBook data.

Contraction poses challenge for Prime Minister Sir Keir Starmer’s Labour government

The UK’s listed housebuilders are on track to build the fewest new homes for sale in a decade, as planning rules and high mortgage rates hold the market back despite the new Labour government’s push to increase housing supply. 

The sector, excluding Vistry which focuses on affordable and rental housing, is forecast to complete just over 50,000 homes this year, the lowest level of output since 2013, according to Financial Times analysis of figures for seven companies compiled by Investec. 

“The listed players are broadly delivering their lowest completions for a decade,” said Aynsley Lammin, analyst at Investec. He said “both demand and supply factors” — including high mortgage rates making purchases harder for first-time buyers — were behind the slump. 

The housebuilding contraction poses a huge challenge for Prime Minister Sir Keir Starmer’s Labour government, which has launched sweeping planning reforms in an effort to boost the construction of new homes to the highest level in more than 50 years. 

The reforms have been welcomed by the construction sector but shares in UK housebuilders have fallen by about a fifth since the Labour government’s first Budget in October, which raised fears of resurgent inflation and borrowing costs staying higher for longer.

Big housebuilders such as Barratt, Persimmon and Taylor Wimpey are highly sensitive to interest rates because most of their customers rely on mortgages, and many are first-time buyers who are stretching their budgets to the maximum. 

Mortgage rates have stayed higher than expected this year, above 5 per cent on average according to financial information provider Moneyfacts. 

Output across the seven listed housebuilders slipped by 3 per cent this year. It follows a drop of one-fifth in 2023 in the aftermath of the Conservatives’ mini-budget in September 2022, which led to a surge in mortgage rates and slammed the brakes on the property market.

The downturn in new home completions by these companies — which also include Bellway, Berkeley, Crest Nicholson and MJ Gleeson — is part of a wider contraction in housing output. Data tracking the total supply of new dwellings showed 5 per cent fewer homes completed in the first nine months of 2024, compared with the same period a year before. 

As sales have declined, housebuilders have pulled back from buying land and opening new sites, reducing their output and trying to avoid having to cut the price of their homes. 

Many in the sector are hopeful that 2025 will be the start of a recovery, with mortgage rates expected to fall gradually and the possibility of Labour’s pro-building reforms starting to bear fruit.

“The 2024 Labour government is the most pro-housebuilding government we can remember,” said Anthony Codling, RBC analyst. “The UK housebuilders have been oversold since the Budget.” 

Analysts and industry groups have warned that Labour is likely to miss its target of 1.5mn new homes unless it can find ways to help more overstretched first time buyers afford a home — and provide much greater funding to affordable housing. 

But some industry executives are still bullish. “I get fed up with the moaners,” Bellway chief executive Jason Honeyman told the FT on an October results call.

“People wanted to complain about the old government, who didn’t want any new homes. And now they want to complain about the new government, who want to build too many,” he said. “It’s ambitious . . . The housebuilding sector takes a while to start building again”.

EU burns through gas storage at fastest rate since energy crisis

Colder weather and lower seaborne imports increase reliance on stored gas

The EU is emptying its gas storage facilities at the fastest pace since the energy crisis three years ago as colder weather and a decline in seaborne imports raise demand.

The volume of gas in the bloc’s storage sites has dropped about 19 per cent from the end of September, when the refilling season ends in gas markets, to mid-December, according to data from Gas Infrastructure Europe, an industry body.

The previous two years only saw single-digit drops over the same period, when higher than normal temperatures ensured that storage remained relatively full well into the winter heating season, and industries curbed demand due to higher prices.

“Europe has had to rely much more on its underground stores so far this winter than in the past two years to make up for lower liquefied natural gas imports and to meet stronger demand,” said Natasha Fielding, head of European gas pricing at Argus Media, a pricing agency.

Europe has also faced more competition for LNG imports from Asian buyers, who have been drawn by prices that are lower than in recent years. That has led to a slowdown in imports and the need to draw more on the stored reserves.

The last time the continent’s gas stores were emptied this fast by mid-December was in 2021, when Russia began cutting pipeline gas supplies ahead of its full-scale invasion of Ukraine.

The EU’s storage levels are now at 75 per cent, marginally above the average of the previous 10 years, before western European governments began trying to lessen their dependence on Russian imports. Storage levels were close to 90 per cent as of mid-December last year.

European gas prices are about 90 per cent below the above-€300 per megawatt hour seen during the energy crisis in the summer of 2022. However, emptying storage facilities during the winter could make refilling harder and more expensive next year.

Traders are already trading gas for delivery next summer at a higher price than for delivery in the winter that follows, a sign of the increasingly steep cost of replenishing stockpiles.

EU countries need to fill their storage to 90 per cent of capacity by the start of November under the European Commission’s mandatory refilling target, although some countries have lower targets.

A significant portion of its gas supplies now comes in the form of LNG, which has become increasingly politicised in recent weeks. US president-elect Donald Trump has warned the EU that it must commit to buying “large scale” amounts of US oil and gas or face tariffs, while Qatar has threatened to stop its LNG shipments if member states strictly enforce new legislation that will penalise companies which fail to meet set criteria on carbon emissions, human and labour rights.

The US is the largest supplier of LNG to the EU, and Qatar the third largest.

Another reason for the fast withdrawal was due to Europe experiencing spells of colder weather, as well as the so-called Dunkelflaute — days when neither solar panels nor wind turbines generate any power — which increased gas demand for power generation.

Demand for industrial gas in nine north-west European countries this year has “recovered from the lows of 2023“, rising 6 per cent on the year for January to November, according to Anne-Sophie Corbeau, global research scholar at the Center on Global Energy Policy at Columbia University.

Some countries have depleted their stocks faster than others. The Netherlands saw a 33 per cent drop in gas volumes stored since the start of winter, while France saw a 28 per cent fall.

Russian gas that flows through Ukraine to Europe is also expected to stop at the end of next year as a transit deal expires. The route accounts for about 5 per cent of the EU’s gas imports.

“There doesn’t seem to be a major concern” around the potential halt of Russian gas through Ukraine, said Andreas Guth, secretary-general of Eurogas, an industry body. “That being said . . . every marginal volume [of gas] is of course going to make a difference in the filling season.”

Germany’s own ‘magnificent seven’ help Dax defy bleak growth outlook

Software provider SAP responsible for two-fifths of all Frankfurt gains in year of political tumult

A handful of companies dubbed Germany’s answer to the US “magnificent seven” have driven a strong rally in the country’s stock market this year, defying the gloom enveloping the domestic economy.

Frankfurt’s Dax, an index of 40 blue-chips, has risen 18.7 per cent this year, beating the benchmarks in France and the UK, and far outstripping the region-wide Stoxx Europe 600 index’s 4.8 per cent gain.

The performance comes in spite of weak domestic growth and political turmoil, with Germany’s unpopular coalition government collapsing in November after the parties were unable to reach an agreement over reforms to a fiscal “debt brake”, and the country now heading for a snap election in February.

Meanwhile, the economy is expected to expand by just 0.6 per cent in 2025, down from 1.2 per cent predicted midway through the year, according to economists polled by Consensus Economics. This marks the largest reduction in forecast growth over the period of any major industrial economy.

The Dax’s performance “has been a surprise”, said Timothy Lewis, a portfolio manager at JPMorgan Asset Management, and “serves as a great example of the adage that stock market and economic performance are not one and the same”.

Dax constituents derive less than a quarter of their earnings from within Germany, which has helped provide a buffer against tremors that have, for instance, seen automotive giant Volkswagen set out plans to lay off tens of thousands of workers and shutter several factories.

This year’s bumper stock market returns have largely been driven by seven companies: software giant SAP, defence stock Rheinmetall, industrial conglomerate Siemens, Siemens Energy, Deutsche Telekom, and insurers Allianz and Munich Re. 

SAP alone accounts for nearly 40 per cent of the Dax’s gains, with its shares up more than 70 per cent on the back of its transitioning of business customers to the cloud. It makes up a greater proportion of the index than the auto sector, including Volkswagen and Mercedes-Benz, both of which are in the red this year.

SAP has benefited from the market’s huge appetite this year for stocks with exposure to artificial intelligence. To that end, it has moved its earnings publication times from European mornings to after the US market close, to give it more exposure to North American investors and analysts. In October it replaced Dutch semiconductor equipment manufacturer ASML as Europe’s largest technology company.

“Technology stocks have been the story of this year and unfortunately in Europe we only have two major players: ASML and SAP,” said Marc Halperin, co-head of European equities at asset manager Edmond de Rothschild. “The icing on the cake is AI.”

The seven companies that have powered gains in the Dax have benefited from a variety of tailwinds, with defence company Rheinmetall climbing 107 per cent this year on the back of rising expectations of more defence spending in Europe, while Siemens Energy has gained 329 per cent due to growing demand for renewable power.

Guillaume Jaisson, a macro strategist at Goldman Sachs, said the market was telling “two different stories”, with the market leaders — which he compared to Wall Street’s magnificent seven technology stocks — powering ahead of a swath of exporters vulnerable to a weak Chinese consumer and potential US tariffs.

A weaker euro has also boosted Germany’s export-focused market, with the dollar climbing from €1.11 to €1.04 since the end of September.

Some investors and analysts are concerned about the benchmark’s growing dependence on a small number of stocks.

“It risks an unstable market,” said Arne Rautenberg, a portfolio manager at Union Investment, who believes the market is vulnerable to an earnings shock from SAP.

The election of a new government and potential changes to Germany’s debt brake, US president-elect Donald Trump’s plans for trade tariffs, or China’s stimulus for its domestic economy could “change things very quickly” for the market, he added.

Halperin added that he had recently moved to a position on SAP that was smaller than the benchmark as earnings expectations started to climb to the lofty heights of US peers.

The narrowness of the Dax rally has become more acute in recent years, with the trend taking hold in the wake of the pandemic and mirroring the US where there are fears about the role of a few large technology companies in driving returns on the back of AI demand.

Chipmaking giant Nvidia for example accounts for nearly a quarter of the benchmark S&P 500’s gains this year.

But many fund managers remain bullish on the prospects for German stocks trading at wide discounts to their US counterparts and deriving a significant portion of their revenues from outside their local market.

Marc Schartz, a portfolio manager at Janus Henderson, said the Dax’s concentration was “pretty extreme” but spread across energy, telecoms and insurance, unlike the US, which is solely concentrated in technology stocks. “Having a more diverse set of companies driving the markets isn’t a bad thing,” he said.

“The businesses we invest in are all pan-European. It’s just by chance that they’re listed in a certain postcode,” Schartz added.