Key Events
👉 Nvidia Announces 10-for-1 Stock Split
Nvidia shares closed up 7% Thursday. Nvidia has been the primary player in manufacturing GPUs for video games and recently the central hardware manufacturer in the AI boom.
Revenue in Nvidia’s first fiscal quarter increased by 262% from the previous year.
So, what is the stock split going to do for Nvidia’s investors?
Say you have a company worth $100k that you have split into 4 shares, meaning each quarter is worth $25k. You and your three investors each own 25%. But you realized that the price of each share is too high and other investors are not willing to buy a piece. So, you take your piece and the pieces of your investors and cut it into 100. Now, you have 400 shares, each worth $250 ($25k / 100). Each investor now owns 100 units.
Note that your ownership did not get diluted and neither did the value of your pie change. This was simply a financial transaction that created more shares for the same value. But now, you have the opportunity to sell a piece to a potentially large number of investors.
Nvidia realized that a stock price of $949.50 is too high and decided to split each share into 10 pieces, so the value of the stock will be $94.95, allowing a greater number of investors to own a piece of Nvidia and having a positive psychological effect on retail investors. This has no impact on institutional investors who trade millions/billions of dollars in the name.
Is the run-up warranted? Traditional finance theory would laugh at it. It’s absurd. But behavioral economists may argue that there is some underlying signaling. The Company has seen strong share price performance, so they split shares, signaling to the market past strength and potential to continue.
👉 Fed Reluctant On Cutting Interest Rates & Dimon Speaks At Chinese Summit
In its most recent meeting 3 weeks ago, federal reserve officers concluded that they need to keep interest rates steady as the inflation rate has not stabilized at the 2% target.
An unspecified number of officials expressed a willingness to tighten the monetary policy further should inflation risks become more significant. Officials are growing impatient with the face of the decline.
The officials are trying to navigate two risks. Ease too soon and investment and spending will boost asset prices keeping them away from their inflation target. Wait too long and labor markets will weaken, leading to an economic downturn (hard landing).
JPMorgan CEO Jamie Dimon recently spoke at the Global China Summit in Shanghai. He says we can’t rule out a hard landing. The worst case could be stagflation. Inflation remains out of control. And, corporate profits take a turn.
It has happened before, it’s not a new phenomenon. However, the consumer has been robust. They are spending across all areas and unemployment has remained below 4%.
👉 Gold Spikes Before Cooling Down with Fed Remarks
Gold is at its highest level ever Monday, $2,400 per ounce. This trend has defied some typical headwinds.
The yields on 10-year US treasury securities have risen by 0.37 percentage points. Gold typically moves in the opposite direction of yields since it does not generate income and higher interest rates make it less attractive.
However, because of western sanctions on Russia, central banks in emerging economies are buying gold which is easy to stockpile and beyond the foreigners’ reach.
But, with Fed Minutes on Wednesday lack of disinflation, gold prices sold off on the news of interest rates potentially remaining higher for longer.
Mergers and Acquisitions
Anglo American rejected a sweetened $49.2B takeover offer from Australian miner BHP Group
Private Equity
Blue Point Capital Partners acquired National Safety Apparel, a maker of personal protective equipment for the electrical, industrial and service markets.
Initial Public Offerings
Raspberry Pi, a maker of low-priced PCs, confirmed that it picked London for its upcoming IPO.
Venture Capital
AltruBio, a biotech focused on immunological diseases, raised ~$225M in Series B funding.
