💳 Fintech is Getting New Regulations

MARKET UPDATE

Good Morning Investor! Shares of AI chip maker Nvidia (NVDA) and AMD (AMD) rallied 7% and 4% respectively, leaving Nvidia just $100 billion behind Apple (AAPL) in market capitalization. Meanwhile, shares of U.S. Cellular (USM) rallied after news emerged of T-Mobile (TMUS) acquiring the company in a $4.4 billion cash-and-debt deal.

TODAY’S BIG HEADLINES

• Buy Now, Pay Later Will Now Be Treated as Credit Card Companies

• Activist Elliot Takes $2.5 Billion Stake in Texas Instruments

• Deepfake Scammers Are Stealing Millions

FINTECH & PAYMENTS

Buy Now, Pay Later Will Now Be Treated as Credit Card Companies💳

Cash Clash: Once upon a time, the idea of offering customers 0% interest loans to spread out the cost of any purchase over several months without any regulatory oversight or intervention seemed like a no-brainer! But what happens when half the population jumps on the bandwagon? Companies like Block (SQ), PayPal (PYPL), Affirm (AFRM) and Klarna have been handing out these deals like candy at a parade.

Ripping Up the Rule Book: Until recently, these Buy Now Pay Later (BNPL) firms have been living the high life, offering their customers fewer protections than their credit card cousins. But the party’s over. The Consumer Financial Protection Bureau (CFPB) has finished their investigation and announced new regulations Now, BNPL providers will be treated like credit card companies, ensuring they offer timely refunds, allow customers to dispute charges, and provide regular disclosures and statements. These regulations are expected to kick in towards the end of the year, bringing some much-needed law and order to this fast-growing industry.

The Elephant in the Room: Currently, the stats tell us that 1 in 5 households are using BNPL services, highlighting the rapid adoption of the technology faster than a cat video goes viral. However, this regulation doesn’t cover several issues with the BNPL industry. For starters, BNPL companies don’t report all payments to the major credit bureaus and aren’t obliged to do so either. This makes it as hard to assess the risk associated with borrowers as finding a needle in a haystack. The big problem with this lack of transparency is the creation of “phantom debt” across the US economy. This means that there could potentially be more delinquencies than a high school detention room. With the BNPL market expected to double in size by 2028, there’s a risk that trouble in the $687B industry could sneak up on the economy like a ninja in the night.

SEMICONDUCTORS

Activist Elliot Takes $2.5 Billion Stake in Texas Instruments💰

Deep-Pocketed Backers: A behemoth hedge fund known as Elliot, who manages a whopping $65 billion fund, has announced it’s taken a $2.5 billion bite of the US chip maker Texas Instruments (TXN). Their grand plan? To get the company to loosen up a bit and improve its free cash flow by adopting a less rigid plan for capital expenditures. Shares of the company opened the day on Tuesday up as much as 3%, but like a poorly thrown boomerang, they gave all those gains right back shortly thereafter.

Value Vanishing Act: The main reason Elliot decided to park its cash in the company is that the company’s rigid adherence to a capital expenditure plan put in place in 2022 has been as good for shareholder returns as a chocolate teapot.

Elliot’s Master Plan: Elliot released a 13-page letter (yes, you read that right, 13 pages!) with its detailed plan for how to improve its cash flow. The firm proposed that the company adopts a dynamic capacity-management strategy which it estimates could allow the company to achieve free cash flow of as much as $9 a share by 2026, which would be 40% above analyst’s current estimates. The firm went on to say that the firm has alienated investors who might’ve been interested in investing due to its dominant position in distribution analog chips to automotive and industrial complexes.

Wall Street Whispers: Shares of Texas Instruments are up a staggering 18% year-to-date, riding the wave of the sector-wide rally in semiconductor stocks. This figure drops to just 13% over the past 12 months, but hey, who’s counting?

CYBERSECURITY

Deepfake Scammers Are Stealing Millions👹

Deepfake Deception: An alarming trend is sweeping the globe faster than a cat meme, thanks to the impact of generative AI. We’re talking about the rise of Deepfake scams, which are costing companies millions. The kicker? Cybersecurity firms seem to be chasing their tails, struggling to keep up with the rapid improvement of these technologies.

Deepfake Dissection: A deepfake is a form of artificial intelligence that specializes in the creation of media in the form of videos, images, and audio, all designed to replicate the likeness of an individual. This powerful technology is being used to pull off scams on businesses with the finesse of a seasoned con artist, all through the use of identity theft.

The Hong Kong Heist: In a plot twist that could give a James Bond movie a run for its money, earlier this year, a UK-based engineering firm called Arup was hoodwinked by deepfake technology. The scammers played the role of the company’s CFO over a video call with such conviction, they managed to get the firm to transfer a whopping $25 million (HK$200 million). Talk about a costly performance!

Barriers to Entry: The main factor behind the rise of these digital crimes is the increasing availability of generative AI models such as OpenAI’s ChatGPT-4o, which is as accessible to most users as a cup of coffee. The million-dollar question is, should the companies creating these models also be responsible for creating a means of protecting against them? Or is that just wishful thinking?

MORE NEWS

Additional market-moving events🌎

Faster Settlements: Effective from Tuesday, the US stock market will now settle trades in just a single day — the fastest settlement time in a century following new SEC rules. (Reuters)

Toyota’s New Engines: Toyota have recently showcased its new next-generation engines which are compatible with alternative fuel types, including hybrids and biofuels. (Reuters)

UBS Turns Bullish: Swiss investment bank UBS Global Research have raised their year-end price target for the S&P 500 to 5,600. This 5.6% upside reflects strong earnings forecasts, a supportive economic backdrop, and fading recession risks. (YH)

EARNINGS

This Week’s Earnings Calendar📅

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “two superperformers” stock picks which we believe will provide significant outperformance compared to the S&P 500.

Here’s how the two stocks have performed since then:

• Evolution AB: 1,144.50 SEK (📉-12.70%)

• Hims & Hers Health: $19.11 (📈+32.00%)

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