TheChek News Flow

Reform UK would cancel Labour’s northern rail plans

Deputy leader Richard Tice says routes linking Manchester, Leeds and Liverpool are a waste of money

Reform UK would cancel any plans to build high-speed rail lines across the north of England if elected, its deputy leader said, as Nigel Farage’s party chases votes across Labour’s heartlands. 

Richard Tice said that Prime Minister Sir Keir Starmer should not bother to announce plans for high-speed lines between Manchester, Liverpool and Leeds, because a future Reform government would just reverse them. 

Starmer and chancellor Rachel Reeves would give the go-ahead to the so-called Northern Powerhouse Rail project or “NPR” in the “coming weeks”, government officials said on Monday, with an expectation that it would be confirmed at Labour’s annual conference in Liverpool later this month. 

The scheme could establish high-speed rail lines between the three cities, and encompass some parts of the cancelled HS2 line from Birmingham to Manchester. But critics have said the links will not reduce journey times, and could end up costing taxpayers billions.

“Ministers are about to commit to further high-speed rail schemes which could make HS2’s problems and pricetag look trivial,” Tice wrote on Monday, in the foreword to a paper criticising the NPR plans from the Policy Exchange think-tank. 

“Outside a bubble of politicians, journalists and construction industry lobbyists . . . the voters of the north do not want, and never have wanted, a handful of high-speed rail lines, serving a handful of big cities, at fares only business people on expenses can afford,” he added. 

“To anyone tempted to bid for the Liverpool-Manchester high speed scheme, or the revived northern leg of HS2, I give this warning: do not bother. A Reform government will spend the money instead on things the country needs more.”

His comments, which amount to a policy announcement, are the latest area in which the party has sought to draw distinctions with Starmer’s Labour — after criticising the government’s approaches to welfare reform and immigration. 

Reeves is looking for projects to demonstrate that she has a plan to grow the economy and has changed her borrowing rules to allow the government to invest £113bn in capital projects over the next four years. 

Labour has been overtaken by Reform in the polls, and is seeking to defend seats across its northern heartlands from Farage’s party at the next election, which must be held by 2029. 

The chancellor has told colleagues that NPR is “a big thing” and will help boost growth across the cities of the north, Liverpool, Manchester and Leeds, a city she represents as an MP. She said in June that she would “take forward our ambitions for northern powerhouse rail”.

Reeves has also amended the “green book” — the internal Treasury rules for the value for money of big projects — to ensure that schemes in less productive areas, such as some parts of northern England, receive funding.

Part of the planned NPR will run along a route that had been earmarked for the aborted northern leg of HS2, from Birmingham to Manchester. 

The Policy Exchange report, written by former Downing Street adviser Andrew Gilligan, a noted anti-HS2 campaigner, estimated that a high-speed train line from Liverpool to Manchester would cost “perhaps £30bn”, and another £40bn if it were extended to Leeds. 

It said that proposed high-speed lines “would do relatively little” to fix the problem of northern rail congestion in cities such as Manchester or Leeds and “at enormous expense”. 

The report proposed an “Elizabeth Line for the North”, including a tunnel under central Manchester, in order to “join up the existing conventional lines either side” of the city. 

A Labour official said: “Canning high-speed projects will cost the taxpayer billions in wasted write-offs, keep people isolated and smother growth.” An ally of Reeves said: “Reform seems to have given up on the north already.”

Murdoch seals $3.3bn succession deal to hand empire to eldest son

Lachlan takes control as three siblings receive $1.1bn each to settle long-running family feud

Rupert Murdoch has resolved a bitter succession battle and ensured that his media empire will retain its conservative political slant under eldest son Lachlan after buying out three of his children for $3.3bn.

Each of those three Murdoch siblings — James, Elisabeth and Prudence — would receive $1.1bn apiece through a partial share sale by the family trust, according to people familiar with the matter. In exchange, they would give up their ownership interests in News Corp and Fox.

Murdoch’s children with Wendi Deng, Chloe and Grace, will join the trust with Lachlan Murdoch. 

The settlement means that when Rupert Murdoch dies, Lachlan will inherit control of his sprawling media conglomerate, which includes Fox News, The Wall Street Journal, the New York Post and The Sun in London.

The multibillion-dollar payout resolves a decades-long family feud that has mesmerised media and political circles and helped inspire storylines in HBO’s Succession.

The prevailing wisdom had been that James Murdoch, who has been estranged from the family in recent years, had been interested in taking over his father’s news outlets and potentially shifting their conservative political stance. However, the decision ultimately came down to money over ideology, said a person familiar with the negotiations. 

The resolution follows an embarrassing legal battle as the 94-year-old Rupert tried to amend the trust that holds the family’s interests in the two companies.

Before the new settlement, voting rights in the trust would have been split between his four eldest children when he died. Murdoch tried to change it to favour Lachlan, in a plan he called “Project Harmony”.

A commissioner in Nevada, where the trust was incorporated, denied Murdoch’s bid last year, leaving his children resentful after having been blindsided by the proposal. 

Monday’s deal will secure the right-leaning political direction of Fox and News Corp’s stable of influential newspapers under Lachlan, who was anointed heir to the empire after being appointed chair of the media group in 2023.

For Rupert, the deal secures the future of a global news empire that has held sway over politicians in the US, the UK and Australia for the past 40 years — and aims to do so long after his death. Fox News has become the dominant media outlet for the American right. 

The deal will be financed through a partial sale of Murdoch’s stake via a block trade that will be handled by Morgan Stanley. Several institutional investors, sovereign wealth funds and large family offices had been lined up to acquire the stake, said three people briefed about the matter.

The move will resolve the unstable status quo that has existed since the family trust was set up almost three decades ago, following Rupert’s divorce of Anna Torv, the mother of Lachlan, Elisabeth and James. Each child — with Prudence — was given an equal voting right after the death of their father. Grace and Chloe previously had an economic interest but no voting control over the trust.

Lachlan’s new trust was advised by Skadden Arps, while the Murdoch siblings were represented by Centerview Partners and Cravath, Swaine & Moore. The old family trust was advised by Sullivan & Cromwell. 

Microsoft taps Nebius to supply up to $20bn of AI computing power

Big Tech group inks 5-year deal to help power its artificial intelligence ambitions

Microsoft has signed a deal worth up to $20bn with the artificial intelligence infrastructure group Nebius to supply computing power for the tech giant’s AI operations over five years.

It is the latest major deal for an AI cloud computing provider — a small group of companies known as “neoclouds” — as tech companies spend hundreds of billions of dollars to build the infrastructure needed to run their powerful AI models.

Nebius’s shares soared as much as 68 per cent to $108 in after-hours trading following the announcement. The $15bn company was formed last year by splitting off the overseas operations of Yandex, Russia’s biggest internet group.

Rival CoreWeave’s shares rose more than 5 per cent as the deal signalled continued demand for AI infrastructure.

Under the deal, Microsoft will lease computing power from Nebius’s stock of graphics processing units (GPUs) — the high-performance chips on which AI models are run — at its new data centre in Vineland, New Jersey.

Nebius said the contract was worth $17.4bn over the next five years, but that it could expand to $19.4bn if Microsoft increases its compute demands.

Microsoft did not immediately respond to a request for comment.

Nebius said it would finance the construction of its data centre and buy the necessary chips with cash flow from the deal as well as by raising debt secured against the contract.

GPUs have become a lucrative asset class in the past two years since the launch of OpenAI’s ChatGPT kick-started a wave of investment in AI infrastructure.

Neocloud groups have raised billions of dollars of debt against their stash of chips. CoreWeave, which went public in March and is now worth about $45bn, has borrowed more than $12bn using its GPUs and services contracts with tech companies as collateral for the loans.

Microsoft signed contracts with CoreWeave worth as much as $10bn last year, but later chose not to exercise an option for a further $12bn of data centre capacity, the Financial Times has reported. CoreWeave subsequently signed contracts to supply computing power to OpenAI worth roughly $12bn.

Microsoft in July said its annual capital expenditure on AI would reach $120bn, up from $88bn the previous year and almost quadruple the $32bn in 2023.

Amsterdam-based Nebius is racing to build out new data centres for clients including French AI group Mistral. Its biggest data centre is in Finland but it has signalled it would expand in the US, where it said demand from customers is stronger than in Europe.

Arkady Volozh, founder and chief executive of Nebius, said: “The economics of the deal are attractive in their own right, but, significantly, the deal will also help us to accelerate the growth of our AI cloud business even further in 2026 and beyond.”

Shares in US-listed Yandex were suspended in 2022 following Russia’s full-scale invasion of Ukraine.

After a protracted negotiation with the Kremlin, Yandex struck a $5.4bn deal in February to sell its core Russian business to a consortium of investors. Nebius was formed from the remainder of Yandex’s former international operations.

Pret A Manger writes down a third of its value from 2018 JAB takeover

Sandwich and coffee chain blames global economic gloom, UK employer tax rises and higher interest rates

Pret A Manger has written off a third of the value of its 2018 acquisition by European investment group JAB, pushing the UK-based coffee and sandwich chain further into the red as higher costs and an uncertain economic outlook dent its prospects.

In its accounts for last year, the group made a £553mn non-cash impairment to the £912mn goodwill on its balance sheet created as part of the deal, which valued Pret at £1.5bn.

The writedown reflected the “uncertain global macroeconomic environment”, extra costs from the increase in national insurance contributions and the impact of higher interest rates on its long-term value, the company said.

As a result of the writedown, Pret sunk to a pre-tax loss of £525mn last year, compared with a £61.7mn loss in 2023.

In June, the FT reported that family-owned JAB had recently explored bringing in new investors ahead of a potential initial public offering. On Monday, Pret chair José Cil said that “there is the potential for an IPO”.

Pret noted that 2024 was the first year since the 2020 pandemic that it had consistent trading data to allow it to make forecasts, triggering the impairment. Pret was hard hit by the move to working from home during the pandemic — a trend that has not entirely disappeared.

Revenues fell to £868mn in 2024, down from £907mn the previous year, driven by the disposal of a controlling stake in parts of its US business. 

The accounts for the year ended January 2 2025 also show that JAB has injected a further £250mn into the company, which was used partly to repay debt as well as to increase the group’s cash on hand and unused borrowing facilities to about £100mn.

Pret has been pursuing international expansion, taking its menu of wraps, sandwiches and hot snacks to countries around the world, although it still makes the majority — £741mn — of its revenues in the UK and Ireland. Pret is prioritising city centres and travel hubs in particular.

It now has 717 stores in 20 countries — 408 are company operated and the rest franchised — up 11 per cent year-on-year. It plans to launch in South Africa in 2025.

The accounts say that the group has also embarked on a restructuring plan to improve “operating efficiency” and reduce costs, without giving further details. 

Pret has announced a new medium-term strategy, including plans to test meal deal formats to try to win market share from rivals such as Marks and Spencer in the UK. It said that its July launch of “Super Plates”, or bigger salads, had increased customer visits, particularly in London.

Like-for-like sales rose 2.8 per cent, the company said, with worldwide “system sales” including franchise shops rising 10 per cent to £1.2bn.

Pret, which was founded in 1986, employed about 8,165 people last year. During the period, the company declared and distributed an interim dividend of £2mn — down from £5mn in 2023 — to its parent company. 

Pano Christou, chief executive, said that 2024 “was another year of growth for Pret, where we took disciplined decisions to protect sales, despite intense strains on the hospitality industry”. 

In February 2024, Pret completed the majority disposal of outlets in New York, Philadelphia and Washington to Empire JointStar, a partnership between Pret and Dallas Holdings, which is also Pret’s franchise partner in parts of the UK and in Southern California.

Dallas Holdings controls and operates Empire JointStar with a 70 per cent stake.

Private capital groups take $525mn stake in Middle Eastern real estate portal after sale prices surge

Private capital firms Permira and Blackstone are buying a $525mn stake in a Middle Eastern real estate classifieds business in a bet that a boom in Dubai’s real estate market has further to run.

The investors are purchasing part of a stake in online portal Property Finder held by private equity firm General Atlantic. The deal values Property Finder at $2bn, a person familiar with the matter said.

Permira, which has invested in online classifieds businesses in other countries, is the lead investor on the deal and has invested $350mn. 

Property Finder’s main business is in the United Arab Emirates, where Dubai, the region’s commercial hub, is in its third property bull run since it opened to foreign investment in the early 2000s.

Average sale prices per square foot in Dubai have soared 68 per cent in the last six years, according to data analytics firm Reidin.

Michael Lahyani, who founded Property Finder in 2007, said the growth is mainly driven by the UAE’s expanding population. Dubai’s population surpassed 4mn people this month, according to official estimates, having increased by a fifth in six years.

Lahyani, who is still chief executive and a shareholder in Property Finder, predicted Dubai real estate values would grow by more than 20 per cent per annum for “for another year or two” before slowing to a “more sustainable number”.

Not everyone is convinced that Dubai’s property surge can continue. Rating agency Fitch has forecast a downturn in the second half of this year, as it expects a flood of new homes to hit the market. 

The city’s two previous property booms ended in busts. Its first bubble burst following the 2008 global financial crisis, while a second rally — stoked by regional investors looking for a safe haven after the 2011 Arab spring — went into reverse in 2015.

General Atlantic initially invested in Property Finder, which also operates in Egypt, Saudi Arabia, Qatar and Bahrain, during another market downturn in 2018. 

Lahyani argued that this time around “the property market is in a very different shape . . . it is not leveraged like it was back in the day”, he said, adding that growth was coming from rising sales volumes.

Dubai’s land department recorded 125,538 real estate transactions in the first half of this year, a 26 per cent increase on the same period in 2024.

Permira and Blackstone pointed to high rental yields and low vacancies in Dubai’s real estate market, adding that classifieds businesses tend to perform well in downturns regardless.

David Erlong, partner and global co-head of consumer at Permira, said there was plenty of room for classifieds businesses to grow in the UAE as they were used by relatively fewer consumers than in more mature markets.

“We’re huge believers in the Gulf region, the UAE, Dubai in particular,” said Paul Morrissey, head of Blackstone Growth in Europe, adding that the firm believed economic growth in the region “has a huge way to run”.

Chris Caulkin, General Atlantic’s technology head in the Emea region, said the private equity firm had “retained a very, very large portion of our investment. But also we think it’s the right thing for the company to start bringing in a broader shareholder group”.

Dubai’s risky decision to quickly reopen during the pandemic in 2020 made it one of few cities accessible for tourists and business travellers, fuelling renewed interest in its real estate.

Meanwhile, changes to the UAE’s visa regime have encouraged foreign workers — the vast majority of the country’s population — to stay for longer periods.

Dubai’s property market has also benefited from an influx of demand from those fleeing the consequences of Russia’s invasion of Ukraine, while the emirate’s embrace of cryptocurrency meant many newly minted bitcoin millionaires bought homes too.

Booking.com, Expedia and Airbnb face threat of a technology that could bypass them as people make travel arrangements

The world’s largest online booking platforms are preparing for the advent of artificial intelligence “agents”, signing partnerships with groups such as OpenAI in an effort to counter technology capable of arranging travel for customers without tapping their services.

Booking.com and Expedia are taking steps to deploy new AI-enabled features underpinned by models from OpenAI to automate services and launch new tools, including trip planners.

Airbnb has rolled out an AI-enabled customer service agent to handle customer queries, while it plans to launch more “agentic” functions on its platform next year.

The moves come as makers of AI agents — autonomous bots that can take actions on behalf of users — develop technology designed to make travel arrangements for users based on their unique preferences.

This could upend the $1.6tn global travel market, allowing more hotels and airlines to be accessed directly. That would disrupt the business model of dominant online travel agents that rely on the commissions and fees they can charge those businesses.

“We don’t have to do what OpenAI, Google, Grok or Meta are doing . . .[all of whom] are having to invest incredible amounts of money to build these models,” said Glenn Fogel, chief executive of Booking Holdings, which owns the Priceline and Booking.com platforms.

“Our belief is that as long as we . . . work closely with them that we will be able to participate in a way that provides a great return for our customers and our partners,” he added.

Start-up Anthropic in late 2024 began rolling out an AI agent dubbed “computer use” that can take actions in browsers, while rivals including OpenAI and Google launched their equivalent this year.

The technology’s potential has been heralded by the hotel sector, which has long complained about fees — that can range between 15 and 20 per cent — imposed by online travel platforms.

HOTREC, a European hotel industry group, said AI agents showed “clear potential” to reduce hoteliers’ reliance on OTAs but warned that it could also replicate what it described as a “dependency cycle”. The lobby group argued that existing online platforms operate by using opaque ranking models and offer its members limited visibility around the return made on fees they charge to boost the visibility of properties.

Max Niederhofer, partner at Heartcore Capital, an investor in travel start-ups such as GetYourGuide, said agentic AI would help widen the possible range of providers that travellers use to find properties.

“Fundamentally, [OTAs] are parasitic . . . If [hotels] don’t have any commission to pay, that’s 20 or so per cent they can use to give [customers] other things like a better room,” he said. “Online travel agents’ ‘take rates’ are at risk.”

A senior executive at a global hotel chain said Booking and Expedia had spent more time in outreach in recent months amid concerns that AI tools would cut them out of the process when customers sought to book accommodation.

“There was a natural inclination and still is among investors that travel loses in an AI first world,” said Eric Sheridan, analyst at Goldman Sachs, who noted that concerns about the technology were weighing on online travel agents’ share price alongside soft US consumer demand.

Booking and Expedia have tracked closely with the performance of the tech-heavy Nasdaq Composite this year, but have not posted the same astronomic performance seen elsewhere in the wider tech market. Airbnb shares are down nearly 6 per cent this year.

OTAs have sought to damp these concerns by highlighting the customer support infrastructure and vast datasets including user preferences and a ready-made inventory of properties that underpin their services. They argue that replicating this would constitute a significant time and resource drain for major technology companies.

“We have a lot of data on travel behaviour [that shows] what our travellers want,” said Jochen Koedijk, Expedia’s chief marketing officer. “What sells and what doesn’t sell. That’s the really big value proposition. It’s not easy to build an online travel agency.”

Yet Fogel acknowledged that the nascent technology still fed into his own “paranoid view of the world”. “You’re always worried that you’re going to fall off the map,” he added.

Booking.com reached an agreement with OpenAI in 2023 to build an array of tools including an “AI Trip Planner” that utilises the start-up’s models. The planner uses Booking’s own property, pricing and availability data to fine-tune the model to its customers’ needs. Rival Expedia integrated OpenAI’s models in the same year and is already deploying the ChatGPT maker’s “Operator” agent system.

Airbnb chief Brian Chesky told investors in early August that the platform would become “more personalised and more agentic” next year. “It will not only tell you how to cancel your reservation, it will know which reservation you want to cancel. It can cancel it for you . . . It can start to search and help you plan and book your next trip,” he said.

Unlike ecommerce group Amazon, major online travel agents have not blocked scrapers designed to pull content for AI-enabled search engines and agents such as Operator and Perplexity’s Comet browser.

Fogel said Booking Holdings would not rule out the possibility of blocking scrapers in the future. “We believe at this stage of development it is good to have conversations . . . This doesn’t mean that we won’t block in the future,” he said.

OTAs maintain that agentic AI is still early in its development. Researchers found late last year that OpenAI’s GPT4 model was able to successfully complete complex travel planning tasks only 0.6 per cent of the time.

“I am not foolish enough to say that I’m not worried about it,” said Fogel. “There’s no such thing as a moat.”

Moscow has stepped up attacks during Trump’s attempts to broker a peace deal, heaping pressure on Kyiv’s stocks

Ukraine is at risk of shortages of air defence weapons after a US defence department review of military aid resulted in slower deliveries just as Moscow intensifies air attacks, according to western and Ukrainian officials.

Pressure on supplies has become more acute after months of irregular and smaller than expected shipments since a Pentagon directive in June. Officials and analysts warned that if Moscow keeps escalating or just sustains its higher tempo of missile and drone attacks, Ukrainian air defence units will face shortfalls.

“It’s a question of time for when munitions run out,” said a person familiar with US deliveries of air defence materiel to Ukraine.

The slowdown has been particularly worrying because other missiles procured directly from manufacturers under a separate programme, the Ukraine Security Assistance Initiative, are produced in batches, leaving gaps between deliveries.

EU nations have also recently agreed to send air defence systems and munitions from their stocks and buy others from the US to enable them to supply Ukraine, but these deliveries have only begun arriving in part.

Russian forces on Sunday launched the largest mass aerial attack on Ukraine since their full-scale invasion, firing 805 Shahed attack drones and decoy drones and 13 cruise and ballistic missiles, killing four people.

The waves of missile and drone assaults have come while Russian troops were advancing on the ground towards strategically important cities in eastern Ukraine.

While Ukraine has long warned about supplies for its air defences, including during Joe Biden’s administration, Moscow’s intensifying attacks have made the worries more acute. The US slowdown in arms deliveries followed a memo in early June written by Elbridge Colby, the Pentagon’s top policy official, for defence secretary Pete Hegseth.

Colby, who has said he wants to refocus the US military on countering the growing threat posed by a rising China, argued in the memo that Ukraine’s requests for American weapons could further stretch depleted Pentagon stockpiles.

A White House official said: “Reporting that we are ‘depriving Kyiv of vital air defence munitions’ is demonstrably false, and the Department of War is working very deliberately to support Ukraine’s requirements, including with respect to air defences.”

The official added President Donald Trump wanted to “stop the killing” and had directed the US to “sell weapons to Nato allies that can backfill what European countries are sending to Ukraine”.

“However, European countries must step up as well, including by ending purchases of Russian oil and placing economic pressure on countries that finance the war.”

Following a readiness review of 10 important systems, the Pentagon first paused and then slowed down shipments to Ukraine of Pac-3 interceptors for Patriot air defence systems; dozens of Stinger man-portable air defence systems; precision-guided artillery shells; more than 100 Hellfire missiles and Aim missiles launched by Ukraine’s Nasams air defence systems and F-16 fighter jets, said senior US and Ukrainian officials.

Kyiv’s forces have since the summer expended significant munitions trying to defend against intense aerial barrages targeting military and civilian infrastructure, said Ukrainian officials.

As Russia expands air strikes on energy facilities ahead of the colder autumn and winter months to try to weaken Ukraine and press its advantage on the battlefield, Kyiv expects greater defensive challenges.

Russia’s drone attacks have increased sharply this year, with an average of more than 5,200 drone launches a month this summer — a trend that is likely to continue, Ukrainian officials and analysts warn.

The number of Russian missiles has decreased slightly this year but hundreds are still launched each month, according to Ukrainian Air Force data.

Each heavy Russian barrage forces Ukraine to fire off precious interceptors and other munitions at a pace faster than American replacements can arrive. 

Russian attacks have escalated since President Vladimir Putin met Trump in Alaska last month. This included the biggest drone and missile attack on Kyiv and other cities on Sunday when Ukraine’s cabinet building was struck for the first time during the war.

Katarína Mathernová, the EU ambassador to Ukraine, said after touring the damage that an Iskander ballistic missile had struck the building.

“I saw it with my own eyes: Putin knows exactly what he is doing,” she said on Monday. The Iskander ballistic missile was aimed “at the heart of Ukraine’s government”, she added.

Ukraine’s President Volodymyr Zelenskyy last week said he had instructed his secretary of the National Security and Defense Council, Rustem Umerov, to co-ordinate Ukraine’s officials, regional administrations and energy companies on procuring additional short and medium-range air defence systems.

The priority is intercepting Russia’s Iran-designed Shahed attack drones, he said. Zelenskyy said he had met Ukrainian air force officials to discuss “accelerating the supply of additional air defence systems”.

Some relief is on the way. European allies of Ukraine have begun buying US weapons for the country after a deal struck with Trump during a summit at the White House in August to allow for indirect sales to Kyiv, which Andriy Yermak, Zelenskyy’s chief of staff, called a “breakthrough point”.

The effort, led by Nato countries, allows participating nations to purchase military equipment and munitions from US stockpiles for Kyiv.

European partners bought $2bn worth in August, including for air defences, Zelenskyy said last Wednesday. Ukraine’s goal is to secure at least $1bn each month, he added.

Does valuation matter any more in the age of AI?

Durability of corporate growth and profit margins might outweigh metrics showing the cheapness of a stock

Many of us in markets were reared to believe that the key to investing in stocks was to buy low and sell high. We buy our little dream today and sell it to a someone with a bigger dream later. That philosophy implies that buying stocks with a cheap valuation, on metrics such as price-to-forward earnings, or with high free cash flow yield, is important. The truth is, though, that in most cases such an approach has been declining in usefulness for stock selection and over-reliance on it can destroy value.

Three years ago, artificial intelligence was not on most investors’ radar screens. Now it is influencing nearly every investment decision and it is a big reason why a valuation metric-based approach to investing won’t be as effective for stock selection for the coming year.

It not hard to see why. Look no further than semiconductor giant Nvidia’s quarterly revenue over the past two and a half years. The actual reported revenue growth seems almost preposterously high. From $6bn in the first quarter of 2023, revenue is expected to hit $60bn in the first quarter of next year, according to consensus forecasts.

Sentiment might turn on AI eventually, but it is too early to get bearish on its impact. The direct revenue beneficiaries from AI growth are likely to produce solid fundamentals that will probably last for several years. In addition, there are also many stocks that investors consider to be potential productivity beneficiaries from AI. Through it, these companies can better predict their employee and customer behaviours, avoiding substantial hiring to drive profit margins higher through efficiencies.

We have seen how increasing net margins can have a significant impact on share prices. One notable case is the membership-only retailer Costco, which saw its share price reached a multiple of more than 50 times its forward earnings estimates last year as confidence on its margins improved.

There are also those companies with revenue models that appear to be relatively impregnable to AI. Industries such as select utilities, waste disposal and aggregates come to mind. We believe such robust companies will continue to see their valuation multiples expand given that long-term earnings estimates and growth rates are more likely to be achievable.

Finally, those companies that are seeing their business models disrupted by AI are likely to remain under pressure (and optically cheap). Take Getty Images as an example. This is one of the world’s largest providers of stock photography, video and music. Today’s abundance of AI-generated and free imagery has undermined both its pricing power and growth. This stock has therefore seen a consistent contraction in the multiple of its enterprise value to forecast sales.

If an investor is betting on a mean-reverting approach of buying low and selling high based on valuation, all they are really doing in the current regime is divesting companies that have a higher probability of benefiting from AI and investing in those that have an increased likelihood of being disrupted. We think that is a foolish strategy and is the reason that valuation is unlikely to be effective for stock selection.

There are some other forces that have caused this phenomenon as well. In contrast to the 1980s and the 1990s, more funds are being driven by growth in quantitative investing and trading with a time horizon measured in hours or days instead of quarters or years. These strategies are often intentionally valuation neutral — taking long and short stock positions on the basis of market trends, happily indifferent to traditional valuation metrics. This has increased the momentum effect driving prices and markets.

With that as a background, we would still offer some words of caution on eschewing a valuation based approach of buying low, selling high. First, extremely expensive companies should be avoided. In fact, companies that have reached the most expensive decile of price-to-forward earnings multiples do subsequently lag behind (the cheapest quartile also materially lags).

Second, investing is sensitive to changes in the perceptions of growth and rates. In 2022, for example, a hawkish Federal Reserve and interest rate rises had a statistically significant impact on valuations with multiples contracting as investors became more conservative. While markets are now expecting rate cuts, that could change. Third, valuation might fail to be useful in timeframes of less than three years, but could still be valuable in longer horizons, such as 5 to 10 years.

While extremes and long-term horizons still matter, near-term investing success depends more on growth durability and margin expansion than on cheapness.

Money flowing into green and blue hydrogen projects rises $35bn in the past year

Over $110bn is being invested in more than 500 clean hydrogen projects worldwide, according to a new report that pushes back against growing scepticism about the fuel’s future after a wave of high-profile cancellations.

The study, commissioned by the Hydrogen Council, found that $35bn of new projects had reached a final investment decision over the past year, and that pledged investment has been growing at more than 50 per cent annually since 2020.

“The pendulum has been swinging between exuberant enthusiasm — or hype — and doom and gloom,” said Ivana Jemelkova, the lobby group’s chief executive. “If you tell me hydrogen is dead, I can show you 500-plus examples that it’s not.”

The promise of hydrogen, an alternative to oil and gas that produces only water vapour when it burns, peaked in 2022, when the EU forecast that renewable hydrogen would cover one-tenth of the bloc’s energy needs by 2050, turning its industry and transport system green. 

The gas is widely used in refineries, in making fertiliser, and can power steel furnaces, heavy machinery and vehicles. But producing, storing and transporting it remains expensive and technically difficult. Demand has been limited at current prices, which vary by individual project.

And while at least 50 projects have been abandoned over the past 18 months by groups such as BP, Shell, ArcelorMittal and Iberdrola, Jemelkova said this did not reflect a broader slowdown.

“The industry is growing through the process of natural attrition — it’s normal. It was the same in solar,” she said. 

China and the US account for more than half of the $110bn so far invested. Beijing has prioritised “green” hydrogen, which uses renewable electricity to split water molecules, while Washington has focused on “blue” hydrogen, derived from gas with carbon emissions captured and stored.

In total, there is now 1mn tonnes of hydrogen capacity in operation and another 5mn tonnes under construction, equivalent to about half of current US consumption.

“It’s far lower than people had expected,” said Sanjiv Lamba, chief executive of industrial gas group Linde and Hydrogen Council co-chair, but it did show that “projects at scale, which are there to meet demand” can be competitive. 

Much of the new investment in the past year stemmed from a few mega projects, including four large Chinese plants under construction, Blue Point in the US, and that being developed by India’s Hygenco and Ameropa of Switzerland. 

“We’re seeing projects that are a bit more serious, which are bigger, which are supported by the strongest technologies,” said Pierre-Etienne Franc, head of asset manager Hy24, which has invested $2bn in clean hydrogen.

“Developers have disappeared, some gigantic projects have disappeared as well. But if you really look at the figures, they’re far better than what people were saying on the market.”

Franc said that growth, and the focus of his investment, was increasingly in Asia, the Middle East and the US, while Europe was lagging. “If Europe doesn’t get its act together then it’s going to be closed,” he said, echoing widespread criticism of the EU’s regulatory approach.

Lamba said Europe was being held back by a “lack of pragmatism” and its refusal to consider blue hydrogen as a lower-cost transitional option.

One of the largest proposed blue hydrogen projects is ExxonMobil’s plant at Baytown in Texas, but the company has yet to take a final investment decision. “We’re concerned about the development of a broader market,” Exxon chief Darren Wood told analysts last month. “If we can’t see an eventual path to a market-driven business, we won’t move forward with the project.”