FT : AstraZeneca ties up with AI biologics company to develop cancer drug

AstraZeneca ties up with AI biologics company to develop cancer drug
Deal with Absci is the latest between big pharma and tech companies to build new disease treatments

AstraZeneca has signed a deal worth up to $247mn with Absci Corporation of the US to design an antibody to fight cancer, the latest tie-up in fast-expanding efforts to use artificial intelligence for drug discovery.

The collaboration aims to harness Absci’s AI technology for large-scale protein analysis to find a viable oncology therapy — a leading focus of Anglo-Swedish drugmaker AstraZeneca.

The partnership adds to a flurry of agreements between big pharmaceutical companies and young AI businesses to build novel disease treatments and cut the costs of developing them.

Sean McClain, Absci’s founder and chief executive, said the application of engineering principles to drug discovery improved the potential of success and a reduction of the time spent in development.

The deal includes an upfront fee for Absci, research and development funding and milestone payments, as well as royalties on any product sales.

Absci, which is based in Washington state and has an AI research lab in New York, generates proprietary data by measuring millions of interactions between proteins.

It then uses these to train its generative AI model and, eventually, design and validate viable antibodies — proteins that target foreign substances in the body.

The companies have not disclosed precisely which kind of cancer they will target.

The agreement is part of AstraZeneca’s ambitious plans to replace traditional chemotherapy with a new generation of targeted drugs.

In October, it announced the outcomes of clinical trials for new treatments for lung and breast cancers — results it hailed as a “massive achievement”. 

The collaboration with Absci was an “exciting opportunity” to use the company’s antibody creation AI, said Puja Sapra, an AstraZeneca senior vice-president who leads biologics engineering research and development.

“AI is enabling us to not only increase the success and speed of our biologics discovery process, but also enhance the diversity of the biologics we discover,” Sapra said. “We are applying AI throughout our discovery and development process, through building in-house capabilities and through collaborations such as with Absci.”

Anti-tumour drugs using various technologies are a significant subject of collaborations between leading pharmaceuticals multinationals and smaller companies doing cutting-edge research.

In September, Moderna of the US agreed a deal potentially worth more than $1.7bn to develop cancer vaccines and therapies with Germany’s Immatics. The German company uses so-called T-cell receptor technology to target proteins associated with cancer.

FT : Tech funds adopt private equity strategies in race to return cash to invest

Tech funds adopt private equity strategies in race to return cash to investors
Silicon Valley venture capital firms rush to establish ‘continuation funds’

Silicon Valley venture capital firms are rushing to create private equity style structures in a race to protect their portfolios and return money to investors.

VC funds that invest in tech start-ups typically run for 10 years with an option to extend for two years — at which point their backers expect a return on investment, without which they can force a sale of portfolio companies or shut them down.

Providing those returns has become problematic, as a funding boom in fledgling tech companies during the pandemic has been followed by an uncertain economic environment that has led to start-ups staying private for far longer.

In response, dozens of tech investors — including $25bn venture firm New Enterprise Associates and New York-based Insight Partners — have set up or are establishing “continuation fund” vehicles, according to people advising on the plans.

Continuation funds, which are common in private equity but rare in venture capital, are a secondary investment vehicle that allows them to “reset the clock” for several years on some assets in old funds by selling them to a new vehicle that they also control. This helps a VC fund’s backers, known as “limited partners”, to roll over their investment or exit.

“It’s a good time for this kind of structure,” said Hans Swildens, founder of VC firm Industry Ventures. “During the next year, if the IPO market doesn’t function and M&A is light, the only way for VC firms to [distribute funds back to investors] is . . . secondaries.”

Others are undertaking “strip sales”, a form of restructuring in which a slice of a fund’s assets are sold to new investors, as pressure increases to return money to limited partners.

“Unless you have been really conservative in your reserves . . . every venture firm is in need [of liquidity],” said the chief operating officer of one multibillion-dollar Silicon Valley firm. “It is a real problem. Most funds are 10 years old and have scraps left they can’t fund.”

Financial institutions, including Goldman Sachs and Jefferies, and large private investment managers such as Industry Ventures, StepStone Group and Coller Capital have also been in talks with the venture groups with offers to fund secondary transactions, venture capitalists said.

Secondary funds have raised $64bn this year in order to buy up stakes in portfolio companies from venture and private equity investors, according to Jefferies — more than the combined total raised in 2021 and 2022.

“For a lot of folks we are now having exploratory conversations with, they have an absolute need to generate distributions,” said Matt Wesley, head of private capital advisory at Jefferies. “Given the dearth of exits for companies owned by venture firms, certainly the groups who are registered [as investment advisers] are actively exploring continuation funds.”

UK chip designer Arm, US grocery delivery app Instacart and San Francisco-based market automation group Klaviyo listed on New York exchanges in September, ending an 18-month drought in tech initial public offerings. However, trading has been mediocre at all three companies, prompting start-ups to delay their listing plans.

“The performance of the handful of companies that have gone public has intensified some of these conversations among venture firms,” said Joe Binder, a private funds partner at law firm Debevoise & Plimpton. “People had hoped there would be a lot more enthusiasm [for tech listings] but it has waned and so people are turning to alternative solutions.”

However, continuation funds can be unpopular with limited partners which must decide whether to continue to back a VC fund for several more years, or sell their stake, typically at a discount. There are also regulatory restrictions that make it difficult for venture firms that are not registered investment advisers (RIAs) to set up such vehicles.

Insight Partners’ continuation fund allowed it to shift 32 companies from its funds into a new vehicle over a five-week process, according to a letter from Jefferies advertising its services to venture clients. The transaction resulted in $1.3bn being distributed to Insight’s limited partners, the letter said.

In May, Tiger Global, which manages more than $50bn, hired secondary investment advisers Evercore to launch a sale of parts of its venture portfolio, with a strip sale being one option for a deal. Offers from buyers did not meet the valuations that Tiger expected and a transaction has not been completed, according to people close to the plans.

Quiet Capital, whose early investments included Airbnb and Robinhood, raised $100mn from secondary investors in such a “multi-asset tender offer” in late 2021, according to the Jefferies document.

The transaction allowed Quiet Capital LPs to sell half or all of their stake in the fund to new institutional investors at Goldman Sachs Asset Management and Blackstone Strategic Partners — both secondary investors — at a premium, according to a person with knowledge of the deal.

Dozens of large venture funds such as Sequoia, Andreessen Horowitz and General Catalyst have become RIAs in recent years. The regulatory designation made it easier for them to trade in cryptocurrencies, debt and in secondaries, in which they can trade stock with other private investors.

“There used to be clear lines between what a venture capital fund and a private equity fund was, but now all these strategies are converging,” said Binder. “Venture funds . . . are doing the sort of thing you could never have imagined 10 years ago.”

Barrons : AI Is in the Hands of Big Tech. EU Regulation Could Help It Stay That

AI Is in the Hands of Big Tech. EU Regulation Could Help It Stay That Way.
New European legislation on artificial intelligence could help cement the dominance of big U.S. tech companies.

The European Union is seeking a consensus on regulating artificial intelligence, and for once it might be good news for big U.S. technology companies.

A draft of the EU’s proposed AI Act has been making the rounds since 2021. After much back and forth, the EU’s representatives face a key Dec. 6 deadline to reach an agreement. If the act remains in its current state, tech investors should be encouraged, with Microsoft Alphabet Google, and Amazon.com set to be the big winners. The legislation won’t halt AI development, but it imposes a regulatory burden that could ultimately cement their dominance.

Why Is the EU AI Act Important?
The EU AI Act is set to be the world’s first comprehensive legal framework for the sector. While the U.S. government has imposed an executive order on AI, it’s unclear how that would be enforced. In contrast, the EU Act specifies potential fines based on global revenue.

Considering the difficulties of controlling access to AI models, Microsoft, Google, and Amazon will probably have to shape their approach in line with the EU’s requirements. The so-called Brussels Effect often causes the EU’s rules to become the effective international standard. U.S. tech companies, for instance, have spent several years figuring out how to adapt to the EU’s strict privacy law known as General Data Protection Regulation, or GDPR.

The EU has tended to be an antagonist to the U.S. technology giants. In recent years, It has levied billions in fines on them while passing sweeping legislation on digital markets.

What It Means for U.S. Big Tech
Instead of heeding calls from certain scientists and AI doomsayers to pause AI development, the current EU Act proposes to regulate it by implementing a sliding scale of requirements. That gives current AI leaders the ability to continue their innovation but is likely to add additional costs that could be harder for start-ups to handle.

The draft AI Act as supported by the European Parliament is set to assign a higher burden of regulation on the next generation of foundation models, the most powerful AI systems that can be adapted to different tasks.

That would probably include future versions of Microsoft-backed OpenAI’s GPT, as well as models from Google and Meta Platforms and U.S. start-up Anthropic, which is backed by Google and Amazon.

The AI Act would ask whether these models present systemic risks. The ones that do would be subject to enhanced oversight, transparency, and documentation requirements.

The Sticking Point
France, Germany, and Italy have objected to the proposed targeting of regulation at foundation models, the powerful AI systems that can be adapted to different tasks, according to European Parliament member Axel Voss. Instead, they are arguing for regulation to apply to specific AI use cases such as a chatbot or image generator, while foundation models would be self regulated via codes of conduct.

How that negotiation resolves itself should become apparent over the next week or so.

France is home to Mistral AI, an AI start-up that has raised $113 million, according to PitchBook. Germany has Aleph Alpha, which has raised $654 million. Both firms are building AI models similar to the ones from OpenAI.

European venture-capital investors are worried that AI regulation targeting foundation models could put these companies at a disadvantage to their larger U.S.-based rivals.

“Applying risk-based regulation to foundation models, rather than at the application layer [typically apps like ChatGPT], misses the point. All algorithms can be misused by malicious actors—it’s how models are applied that brings risk,” Ekaterina Almasque, general partner at European venture-capital firm OpenOcean, told Barron’s.

Voss, who supports the current proposal put forth by the European Parliament, told Barron’s that Parliament members are sticking to their position that foundation models should be regulated.

The EU parties will come together next on Dec. 6 to try to hash out a compromise. While there’s no hard deadline, failure to agree would make it difficult for the legislation to pass before the coming European Parliament elections in June 2024.

The Beneficiaries
Big Tech companies would be able to use their deep pockets to meet the requirements of the draft act, which could involve paying to license copyrighted data as well as employing staff to test the systems and monitor compliance.

That gives them an advantage over challengers who already face the heavy cost of training next-generation AI models, even before complying with any new regulation. OpenAI’s GPT-4 cost more than $100 million to train, according to company co-founder Sam Altman—that is likely to be prohibitive for many. Microsoft has invested $13 billion in OpenAI. The firm is planning an employee share sale at a valuation of $80 to $90 billion, according to The Wall Street Journal.

Given their head start, vast resources, and ownership of the three largest public clouds, Amazon, Microsoft, and Alphabet are effectively now the AI incumbents. That status could be preserved by new regulation.

Microsoft declined to comment on the EU draft. Google, OpenAI, and Anthropic didn’t respond to requests for comment. A spokesperson for Amazon told Barron’s that it supported the EU’s regulation, but it was important that it didn’t limit low-risk uses of AI.

Interestingly, Meta Platforms has diverged from its Big Tech rivals when it comes to AI. The social-media pioneer doesn’t have its own cloud and has provided its own AI model on an open-source basis.

In June, Meta Platforms’ chief AI scientist Yann LeCun signed an open letter arguing that the EU’s current approach to AI regulation would create disproportionate costs for would-be competitors. LeCun has repeatedly warned that the future of AI risks being dominated by a few powerful companies.

Meta declined to comment on the EU legislation.

Until now, the AI race has largely been determined by talent and infrastructure, which has given Microsoft, Google, and Amazon a formidable advantage. Regulation could reinforce their lead. The dilemma for the EU—and all AI regulators—is balancing risk and competition. That battle is probably just getting started.

BArrons : From Italy With Amore: 4 Cheap Stocks to Buy Now

From Italy With Amore: 4 Cheap Stocks to Buy Now

Italian stocks are trading cheaply, if price/earnings ratios are anything to go by. While many companies and the country’s economy, the third biggest in the euro area after Germany and France, may be struggling, some have the scope to rebound.

Italian companies have long traded at a discount. Poor productivity, elevated levels of government debt, and an aging workforce are weighing on growth. The economy stagnated in the third quarter after contracting 0.4% in the second. But now, the gap between Italian stocks and the rest of the world has grown to the widest since 1998, according to data compiled by Reuters, and twice the average discount of the past 20 years.

Dow Jones data show the average price/earnings ratio on Italy’s benchmark iShares FTSE MIB UCITS exchange-traded fund is 12. For the S&P 500 index, it’s 20, and for the iShares MSCI World ETF, it’s 19. In October, the International Monetary Fund predicted that Italy’s gross domestic product would grow 0.7% this year and next. That compares with 2.1% and 1.5% for the U.S. in 2023 and 2024.

Giorgia Meloni has struggled to make progress in balancing the books since becoming the country’s first female prime minister in October 2022. Rising interest rates from the European Central Bank have raised the cost of servicing the country’s debt, which, at more than 140% of GDP, is the second highest in the euro area behind Greece. A windfall tax on banks drew criticism and was scaled back shortly after being announced in August.

Nevertheless, Italy is home to a number of high-performing companies, and some with a low P/E ratio may be undervalued and worth buying. For example, UniCredit, one of the country’s biggest banks, has a P/E ratio of just 5.6. That puts it at a 10% discount to peers. Its Milan-traded shares have gained more than 85% this year, and the company gets 15 Buy ratings and two Holds among those surveyed by FactSet.

Johann Scholz, an analyst at Morningstar, says the bank recently turned a corner. “The transformation of UniCredit in two years from a perennial underperformer to one of the most profitable banks in Europe has been astounding,” he said in a note. “UniCredit is now comfortably generating mid-double digit returns, despite being one of the best-capitalized banks we cover in Europe.”

Another undervalued Italian company is oil firm Eni, with a P/E ratio of 6, in line with peers. Still, its slightly larger European rivals are more highly valued—BP is priced at 6.7 times forward earnings, and Shell is at 7.7. Eni’s shares are up 12% this year, even though crude-oil prices are down about 5%. If oil prices stay higher for the foreseeable future—and Russia and Saudi Arabia have shown they’re willing to restrict output to prop up prices—Eni could be a good bet.

Anyone following the auto workers strike this year will be familiar with Stellantis, the auto giant that owns the Chrysler, Dodge, Fiat, Jeep, Alfa Romeo, and Maserati brands. Its P/E ratio stands at a shockingly low 3.4. Ford Motor, by contrast, is at 6.7, and General Motors, at 4.2. Stellantis shares have nevertheless gained 43% this year and get 16 Buy ratings and just one Hold on FactSet.

Finally, there’s Ferrari, a Barron’s stock pick from January. Rather than a very low P/E ratio, the sports car maker has a very high valuation of 44, more like a luxury brand than a car company.

Yet many are still bullish on the stock, which has gained 70% so far this year. Its high-profit margins and potential for faster growth than its mass-market peers make it attractive. It will also soon start making electric vehicles, which, if they become as desirable as Ferrari’s gas-guzzling lines, could create even more room to grow.

Italy’s stock market may be in the doldrums, but there could still be some diamonds in the rough.

BArrons : Nvidia and 2 Smaller AI Stocks That Look Undervalued. They Could Be Bi

Nvidia and 2 Smaller AI Stocks That Look Undervalued. They Could Be Big Winners.
Nvidia is the clear—and most obvious—beneficiary from the AI buildout but there are two other companies that are less well known to investors that should equally benefit in the year ahead.

A flurry of recent bad news from the world of semiconductors has been a rare blemish during an otherwise stellar stretch for the economy—and for stocks.

At the end of October, two major chip suppliers said they saw weakness in auto demand for the first time, with On Semiconductor blaming the softness on higher interest rates for car loans. Texas Instruments provided disappointing guidance, saying the industrial sector was particularly soft.

For a shrinking set of bears, those warnings are an indication that the economy isn’t on as strong a footing as many now think. Meanwhile, with the S&P 500 index now 5% away from an all-time high, stock-picking could become trickier in the months ahead.

But even if the global economy does sputter next year, there may be one technology area that looks relatively insulated: the chips and products required to build out the data centers that serve the soaring demand for artificial intelligence.

It’s essential to focus on the right companies to ride the trend. Significant computing shifts, including the internet, mobile, and cloud computing, turned out to be “winner take most” markets. Rival search engines competing with Google faltered, and the Apple iPhone took nearly all of the smartphone industry’s profits. AI probably won’t be different.

While general-use consumer-oriented chatbots like OpenAI’s ChatGPT have garnered much attention, the more significant opportunity may be in the enterprise. Nvidia is the clear—and most obvious—beneficiary from the AI buildout. Its stock, despite a huge run this year, remains attractively priced based on the growth outlook from the company—and Wall Street analysts.

But there are two other companies that are less well known to investors that should equally benefit in the year ahead—Super Micro Computer and Vertiv Holdings They are set to ride Nvidia’s coattails.

Wall Street surveys of corporate technology buyers show that AI infrastructure and AI projects are the top priority for budget spending over the next three years. Earlier this year, Piper Sandler released a report that showed 75% of chief information officers were either testing or implementing AI projects. According to a recent survey of 600 corporate executives by Coatue, more than 60% of respondents said they plan to adopt new AI products.


CEOs have realized that AI could be an existential threat to their businesses if a start-up or another company figures out a way to use the technology against them. That’s why they are frantically investing in the technology to protect their market position and is a reason the structural shift to AI may be durable and last for several years.

The opportunity goes well beyond chatbots. Nvidia’s chief financial officer, Colette Kress, tells Barron’s that a new wave of enterprise AI adoption has recently begun. She says companies are developing customized AI for their respective industries using proprietary data to improve employee productivity.

“If companies build generative-AI solutions that leverage domain expertise and combine multiple data sets (both proprietary and public), then these solutions should generate meaningful time and cost savings,” wrote RBC Capital Markets’ technology team in a recent report.

The opportunity for Nvidia is enormous. The company has stated that the $1 trillion invested in global data-center infrastructure would eventually move from traditional server central processing units, or CPUs, to graphics processing units, or GPUs, that are better enabled to power the parallel computations needed for new applications like AI.

Nvidia dominates the market for GPUs used for AI applications. Jefferies analyst Mark Lipacis analyzed the September numbers from six top cloud-based service providers and found that Nvidia had an 86% market share for AI workloads, which is roughly flat versus the prior year.

Adding more computing power and larger data sets generally has resulted in better performance and results. It bodes well for the durability of Nvidia GPU sales.

Despite rising AI semiconductor competition from other large technology companies—including Microsoft, Amazon.com, Alphabet’s Google, Intel, and Advanced Micro Devices Nvidia will probably maintain its market leadership.

A significant and often overlooked reason for Nvidia’s dominance is its software programming ecosystem, known as CUDA. Developers have built and shared AI-related tools and software libraries on Nvidia’s proprietary platform for more than a decade. It makes it easier to rapidly build AI applications, which is critical for start-ups and corporations to beat their competitors.

Think of CUDA as the operating system for AI, not unlike the role that Microsoft Windows played in the PC boom during the 1990s.

Unlike Microsoft, though, and more like its longtime rival Apple, Nvidia has a “full stack” model—it controls the AI experience across hardware, networking, and software. Retooling technology infrastructure to run different AI chips makes little sense when Nvidia provides the best overall package and performance with the most features.

The stock is up more than 200% this year, and yet analysts continue to underestimate the business. The company has crushed Wall Street’s sales estimates in its last three quarterly reports.

In the three months ended in October, Nvidia reported revenue of $18.1 billion, above analyst expectations of $16.2 billion and up an eye-watering 206% from the prior year.


“Our demand still continues to be quite strong,” Kress says. “At the same time, we are picking up supply.” The executive told Barron’s that Nvidia’s supply of chips would increase every quarter through fiscal 2025, addressing a key issue that has held back Nvidia’s sales in recent quarters, when supply couldn’t keep up with soaring demand.

Advertisement - Scroll to Continue


Perhaps most importantly, Nvidia will start to release chips at a faster pace, making it harder for rivals to catch up. Last month, the company announced its new H200 Tensor Core GPU, scheduled for availability in the second quarter of 2024, which promises a boost of up to 90% in performance versus the current top-of-line H100.

Nvidia recently updated its product road map, moving from its previous two-year product cycle to a one-year cadence for its AI chips. A slide in a company presentation shows that Nvidia plans to release additional successors to the H200 product in 2024 and 2025.

“The bigger AI gets, the more solutions that will be needed, and the faster we will meet those goals and expectations,” Kress says.

To be sure, there’s uncertainty over the U.S. government’s export restrictions on certain Nvidia AI chips to China. Kress has stated that Nvidia’s sales to China will decline significantly in the current quarter, but the shortfall will be offset by other regions.

The rising demand for AI, for instance, is increasing demand for the AI servers that house all of those Nvidia chips. According to TrendForce, AI server shipments are estimated to increase by 38% this year and grow another 38% in 2024.

And that’s good news for Super Micro. The company is the leading independent manufacturer of high-end AI servers that fill the server racks inside data centers. More than half of its revenue is tied to AI. Tesla and Meta Platforms are among Super Micro customers, according to Barclays, in addition to a range of start-ups and cloud computing vendors.

Super Micro CEO Charles Liang says that customers rely on the company’s high-performance custom designs and modular systems that quickly incorporate the latest technologies into server designs. The plug-and-play nature of the servers means that Super Micro servers can incorporate new AI chips two to six months faster than rivals, he says.

Meanwhile, the company’s close partnership with Nvidia is paramount, especially when every company is scrambling to get access to Nvidia’s AI computing power.

Liang says that Super Micro has worked with Nvidia since both companies were founded in 1993. The companies’ headquarters are just 15 minutes apart in Silicon Valley.

AI isn’t just hot as a metaphorical trend. The data centers running those AI servers generate five times more heat than traditional CPU servers and require 10 times more cooling per square foot, Vertiv says.

Vertiv works to keep those temperatures under control. The company’s power and cooling infrastructure equipment to data centers now accounts for 75% of Vertiv’s business.

Vertiv CEO Giordano Albertazzi says the transition from traditional CPU-focused servers to GPU-powered AI servers will take a long time and drive growth for the foreseeable future.

As with Nvidia, Wall Street actually may be underestimating the opportunity. Analysts forecast Vertiv sales growth of 20% this year, falling to just 9% in 2024.

“We strongly believe this is going to be a multiyear wave,” Albertazzi says. “We see it in our [order] pipelines and our backlog. We see it in the intensity and frequency of conversations with data center customers.”

To be sure, none of these AI opportunities have gone unnoticed by investors. Shares of Nvidia, Super Micro, and Vertiv have more than tripled this year due to the market’s excitement over AI-related companies.

Even so, the stocks aren’t trading at particularly aggressive valuations, thanks to equally explosive earnings growth. The question now is whether the companies can keep growing over the long term.

Executives themselves, though, don’t seem worried about slowing growth “This AI revolution can be bigger than the Industrial Revolution 200 years ago,” says Super Micro’s Liang. “The impact is everywhere.”

When asked on the last earnings call if its data center business could continue to grow through 2025, Nvidia CEO Jensen Huang said, “Absolutely,” citing rising demand from corporations for its new offerings.

Historically, growth companies earn price/earnings ratios well in excess of their earnings growth, but that’s not the case with Nvidia, Super Micro, or Vertiv.

Nvidia, for instance, trades at 24 times next year’s earnings estimates, a modest number compared with the roughly estimated 75% growth rate.

Super Micro trades at just 15 times 2024 consensus earnings, versus 28% earnings growth.

Vertiv fetches 20 times; Deutsche Bank analyst Nicole DeBlase predicts that Vertiv can grow its earnings by more than 20% annually through 2025.

As investors become more comfortable with AI-related growth, these valuation multiples are likely to rise, suggesting significant upside for all three stocks.

The past 12 months have put AI front and center in every investor’s mind. Somehow, many of them are still underappreciating the opportunity. That’s not to say that everyone will win from AI. The key is finding the market leaders. Nvidia clearly fits the bill. But it’s not the only one. Among AI investors, Super Micro and Vertiv could soon be household names, as well.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Nvidia is the clear beneficiary of AI development

Cover:
-Nvidia is the clear beneficiary of AI development, with its stock remaining attractively priced despite a significant run this year. Super Micro Computer and Vertiv Holdings are also expected to benefit from AI infrastructure and projects. Corporate technology buyers prioritize AI infrastructure and projects over the next three years, with 75% of chief information officers testing or implementing AI projects. A recent survey of 600 corporate executives revealed over 60% plan to adopt new AI products. CEOs are investing in AI to protect their market position and ensure a durable structural shift to AI.

Interview:
No interview this week

Tech Trader:
-The year has been a spectacular one for technology stocks, with the Magnificent Seven megacaps, Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Meta Platforms, and Tesla, having more than doubled their prices. However, the rally seems unsustainable, and investors are looking for new ideas in 2024. HP Inc., which is known for its AI-capable microprocessors, is one of the stocks worth considering. Dell Technologies, which has seen a 79% rally this year, has predicted a rebound in PC demand in 2024. HP trades for just eight times earnings and offers a nearly 4% yield. HPE, which makes servers, supercomputers, and networking gear, has seen a 37% spike in sales in the latest quarter. HPE's high-powered systems are well-suited for building AI models, and orders are piling up. HPE's stock is up a measly 6% this year and trades for only eight times earnings. SoftBank Group, a Japanese tech holding company, has had a rotten year, with its stock off 3% and suffering losses on some bets made in the Vision Fund. However, SoftBank remains absurdly undervalued, with its 90% stake in Arm Holdings accounting for 95% of its market capitalization.

The Trader:
-Activist investor Elliott Management is advocating for changes at Crown Castle, a communications-infrastructure real estate investment trust, which could potentially boost the stocks of cell-tower REITs. The hedge fund is pushing for improvements to Crown Castle's corporate governance and a rethinking of its approach to fiber-optic cable investments, which have not been generating sufficient high returns. This could involve paring back capital expenditures or selling the business and associated assets. Shares of Crown Castle jumped 15% this past Monday. However, the three cell-tower REITs, Crown, American Tower, and SBA Communications, were already attractive before the hedge fund's involvement. The stocks have been out of favor this year, with American Tower off 1% and SBA and Crown Castle down around 10%.
-Gold is at a record high, driven by a dip in bond yields, a weaker U.S. dollar, and geopolitical risk. The rally has legs, with gold trading above $2,060 per ounce on Thursday, surpassing its August 2020 high. Gold has gained 12% since trading around $1,830 per ounce in early October. Since the Middle East war, bond yields have reversed, making gold more attractive. Gold miners' shares haven't kept pace with the metal's price, but the VanEck Gold Miners ETF is up almost 9% year to date, following a 16% surge since October. Newmont stock is down 14% in 2023. The scale of the divergence and technical indicators suggest a continued catch-up rally by gold-mining stocks. The gold futures closed higher than 91% of all other prices over the trailing three years, creating a massive divergence.

Features:
Uber Technologies, Jabil and Builders FirstSource will join the S&P 500 before the opening of trading on Dec. 18. The above three will replace Sealed Air, Alaska Air Group, and SolarEdge Technologies will join the S&P 500 index. Uber, the largest US company by market capitalization (that wasn’t on the S&P), qualified for inclusion after its third-quarter earnings report showed profitability over the prior four quarters. The ride-share company's stock gained 1.7% in regular trading and 4.6% in after-hours trading. Investors often advance on news of company additions to the S&P 500.
-Federal Reserve Chair Jerome Powell stated that while the central bank has made significant progress in reducing inflation to its 2% target, it is still prepared to tighten monetary policy further if necessary. Powell emphasized the importance of restoring price stability as it is the bedrock of the economy. He said the Fed is proceeding carefully, making decisions based on the "totality of the incoming data" and the balance of risks, and it would be premature to conclude that it has achieved a sufficiently restrictive monetary policy stance.

Europe:
-The European Union is negotiating a draft of its proposed AI Act, which could benefit US tech companies like Microsoft, Google, and Amazon. The Act, which is the world's first comprehensive legal framework for the sector, specifies potential fines based on global revenue. The EU Act is expected to be the biggest winner, as it imposes a regulatory burden that could cement their dominance. The US government has imposed an executive order on AI, but it's unclear how that would be enforced. The EU's rules, known as the Brussels Effect, often become the effective international standard, affecting US tech companies like Google and Amazon.

Emerging Markets:
-No Emerging Markets report today

Commodities:
-Occidental Petroleum is in talks to buy CrownRock, an operator in the West Texas Permian Basin, potentially worth over $10B. Warren Buffett's Berkshire Hathaway is a significant shareholder of Occidental stock. Share prices in the oil giant slipped 0.3% to $60.16, following Exxon, Mobil's acquisition of Pioneer, and Chevron's $53B purchase of Hess in October. Oil prices have slipped slightly this year, setting the stage for mergers as companies maximize their assets.

Streetwise:
-Lilly's weight-loss drug, Zepbound, has risen to No. 9 (in the S&P) in market value, reaching nearly $600B, up from less than $100B in just over five years. Lilly’s top competitor, Novo Nordisk, is Danish, so it’s not in the S&P. If it were, its market value of just over $450B would put it at No. 13, replacing JPMorgan Chase. Novo stock has multiplied more than fourfold in price in five years. Zepbound, which is already sold for diabetes as Mounjaro, has received a regulatory nod for obesity, with a 72-week trial showing an average weight loss of 22.5%. The drug will list for $1,059.87 per month, 20% cheaper than Novo's drug. Obesity is now one of the biggest commercial drug opportunities ever, with consensus estimates estimating $67 billion in annual sales by 2032 and the overall category potentially hitting $100 billion by 2030. This means obesity drugs will outsell immuno-oncology ones, another group with a vast patient population and high list prices.

WSJ : Neiman Marcus Rejects $3 Billion Takeover Bid by Saks

Neiman Marcus Rejects $3 Billion Takeover Bid by Saks
Luxury downturn adds urgency to long-simmering deal talks, but the chains haven’t been able to agree on terms

Saks Fifth Avenue wants to buy rival Neiman Marcus. Neiman is open to a deal. But the two luxury retailers can’t agree on the terms of a marriage.

This week, Neiman rejected Saks’s most recent takeover offer, which valued the upscale chain at close to $3 billion, according to people familiar with the situation. Neiman objected to the deal’s structure, a significant portion of which wasn’t in cash, some of the people said.

The two companies have been negotiating for months, the latest round of on-again, off-again talks that date back more than a decade. A combination would give the luxury department store chains more clout with designer brands as consumers curtail spending on pricey goods.

The talks are continuing, but a deal, if one is reached, is unlikely to come before early next year, the people continued. Both companies are controlled by investor groups.

Both companies have also had recent struggles. Neiman filed for bankruptcy in 2020 but is on stronger footing since emerging from court protection with far less debt. Saks, which is owned by HBC, has delayed paying some suppliers to help manage its cash.

HBC, which also owns the Hudson’s Bay department-store chain in Canada, recently raised $340 million by selling real estate—cash that will help fund its retail operations.

“HBC is committed to its vendor partners and to ensuring that we fulfill all financial obligations,” a spokeswoman said. “Any delayed payments are due to HBC managing through the challenging environment that is impacting the wider retail industry, particularly in Canada.”

The world of retailing has changed dramatically since the two companies were founded more than a century ago. They introduced European luxury brands to well-heeled American shoppers. These days, brands are increasingly calling the shots. They sell directly to consumers with their own stores and ecommerce sites, creating fresh competition for the department stores that carry their wares.

The brand owners are getting so big, they wield tremendous power. LVMH Moët Hennessy Louis Vuitton, a conglomerate that includes Louis Vuitton, Celine and Fendi, has a market capitalization of roughly $385 billion. LVMH Chief Executive Bernard Arnault has competed with Elon Musk for the title of the world’s richest person.

Gucci owner Kering earlier this year said it was buying a stake in Valentino, adding the Italian luxury label to a portfolio that includes Balenciaga and Saint Laurent. And in the U.S., a recent deal will put the Coach, Michael Kors, Kate Spade, Versace, Jimmy Choo and Stuart Weitzman brands under one roof.

A merger of Saks and Neiman could help the chains negotiate better terms with suppliers and allow them to strip out duplicate costs. Saks has 39 stores; Neiman has 36 department stores, two Bergdorf Goodman stores and five Last Call discount stores. There are eight malls that have both a Saks and Neiman Marcus store, according to Green Street, a real-estate research firm, raising the potential of closing some overlapping locations.

Saks and Neiman discussed merging in 2017, but Neiman’s $5 billion in debt from two successive private-equity buyouts made a deal untenable at the time.

Neiman’s bankruptcy in 2020 and the restructuring helped the retailer shed $4 billion in debt. It emerged from court protection later that year with new owners, including Pacific Investment Management, Davidson Kempner Capital Management and Sixth Street Partners.

Both chains rode a pandemic wave of luxury-goods purchases, but the retailers and some brands are reeling from shifts in spending among affluent shoppers. A string of European luxury brands earlier this year reported declining U.S. sales, including Kering, Burberry and Prada.

Neither Saks nor Neiman report financial results publicly. But sales at both companies are down from their rapid pace of a year ago, according to people familiar with the matter.

Neiman’s sales declined 8% to $948 million in the three months ended Oct. 28. Earnings before interest, taxes, depreciation and amortization were $95 million, compared with $112 million in the same period a year ago, according to a presentation reviewed by The Wall Street Journal that the retailer shares with investors.

“U.S. consumers have continued to ease their spending on luxury goods,” wrote Saks.com CEO Marc Metrick in a letter to suppliers dated Sept. 6. “While we don’t foresee a significant change in these spending behaviors in the near term, we expect our comparable performance to improve versus the second half of last year, when spending among these shoppers first began to soften.”

For the three-month period that ended in July, gross merchandise value—which measures the total value of merchandise sold—declined 11% at Saks.com and the physical stores.

In 2021, HBC split the Saks ecommerce business from the stores.

A survey conducted by Saks in late July found that 58% of luxury consumers planned to spend the same or more on luxury goods over the next three months, the first increase since the survey asked this question in May 2022.

WWD : Givenchy and Matthew Williams Are Parting Ways

Givenchy and Matthew Williams Are Parting Ways
The American designer is to exit the French house on Jan. 1 — and has big plans for his signature brand 1017 Alyx 9SM.

Givenchy and its creative director Matthew M. Williams are to part ways after a three-year collaboration, WWD has learned.

His last effort will be the men’s and women’s pre-fall 2024 collections, scheduled to be unveiled in select media in the coming days.

“This change will be effective from January 1, 2024,” Givenchy said in a brief, upbeat statement.

The development underscores a trend for shorter tenures at Europe’s heritage brands, and sets the stage for yet another reinvention at the storied couture house, controlled by luxury giant LVMH Moët Hennessy Louis Vuitton since 1998.

Williams’ departure comes at the end of his initial contract – and only weeks after the American designer forged a business partnership with Hong Kong entrepreneur Adrian Cheng to ramp up development of the designer’s signature brand, 1017 Alyx 9SM. Plans include opening freestanding boutiques and beefing up high-potential categories including jewelry, shoes and accessories.

“Leading the creative direction of Givenchy was, as I said upon my arrival in 2020, the dream of a lifetime,” Williams said in the statement. “Over these three years, I have strived to perpetuate Mr. Hubert de Givenchy’s legacy while bringing my own creative vision and I would like to sincerely thank the studio, Renaud de Lesquen, and LVMH for this incredible opportunity.”

De Lesquen, president and chief executive officer of Givenchy, thanked Williams in turn “for all the energy he brought to Givenchy. His collections, resolutely creative and contemporary, have sparked a new dynamic and found their audience. I join everyone who has had the pleasure of working with Matthew in wishing him every success in his next ventures.”

Williams was announced as Givenchy’s seventh designer just as the coronavirus pandemic gripped the world. Indeed, he had completed his contract negotiations with LVMH via Zoom and unveiled his first collections during coed showroom presentations, everyone masked and distanced.

He was only able to stage his first runway show for the fall 2021 fashion season, roping in his wide network of music buddies to curate booming soundscapes.

Williams designed couture dresses for certain VIPs, including Jodie Foster and Kendall Jenner, and for a Tiffany & Co. high jewelry show in New York last September, but he did not present any high-fashion collections during Paris Couture Week.

His arrival seemed to thrust Givenchy back into the realm of buzz, cool and cultural urgency that it last enjoyed under Riccardo Tisci, creative director from 2005 to 2017.

Business momentum seemed to pick up recently, largely on the strength of Voyou handbags and Shark Lock boots. But big commercial success and widespread media acclaimed eluded Williams and Givenchy, which has been lagging the explosive growth seen at Loewe and Celine, also part of LVMH Fashion Group.

Williams is widely seen as a driven, versatile fashion talent with a sharp vision, strong cultural and artistic connections, and formidable technical chops. When he joined the French house, he was perhaps best known for his signature roller-coaster buckle and collaborations with the likes of Nike, Moncler, Dior, Stüssy and Audemars Piguet.


At Givenchy, the designer frequently drew inspiration from the founder, and occasionally the Tisci era, but mostly he designed according to garment archetypes with an intense focus on fabrication and finishing. “Evolution” was a word he lobbed frequently when discussing his collections.

He made hardware, especially lock-like closures on tailoring and decorative elements on leather goods, a key thrust of his Givenchy, also injecting his prowess with labor-intensive denim finishes and cutting-edge manufacturing techniques for footwear.

In the statement, Givenchy credited Williams with helping the house to modernize its product range, contributing to “new momentum on the international stage, particularly in the United States and Japan.”