🧙 Nvidia Unveils Chinese AI Chip

MARKET UPDATE

Good Morning Investor! Shares of Mattel ($MAT) surged 15% on Monday after L Catterton reportedly made an acquisition offer for the Barbie maker. Meanwhile in the pharmaceutical world, shares of Hims & Hers Health ($HIMS) surged 10% on Tuesday after the company announced that Pharmaceutical Industry Chief Kåre Schultz will be joining the company’s board.

TODAY’S BIG HEADLINES

Nvidia Unveils Chinese AI Chip

China Makes Surprise Rate Cuts

Workers Unionize at Microsoft’s Fallout Maker Bethesda

SEMICONDUCTORS

Nvidia Unveils Chinese AI Chip🧙

Where There’s a Loophole, There’s a Way: Despite the ongoing trade war between the US and China escalating to levels hotter than a jalapeno in a sauna, with the US extensively restricting exports of advanced semiconductors to China, the AI chip king — Nvidia ($NVDA) — appears to have found a loophole.

• The company is reportedly working on a new version of its flagship AI chips to send to China that would be compatible with current U.S. export controls.

• Nvidia will work with Inspur, one of its major distributor partners in China, on the launch and distribution of the chip tentatively named the "B20". Not to be confused with a vitamin supplement, the B20 will be the Chinese equivalent of the Blackwell B200, which is 30 times speedier than its predecessor and due to be mass-produced later in the year.

When Shareholders and Chips Both Get a Boost: Shareholders have welcomed the news like a cold beer on a hot day, as the company has been needing it now more than ever. This is especially true after news emerged last week that OpenAI is looking to diversify away from their overreliance on Nvidia, through partnering with Broadcom ($AVGO) to develop AI chips. Shares of Nvidia were down as much as 13% from their high leading into this week, which has thankfully seen a turnaround.

• Since the US government tightened its controls on exports of cutting-edge semiconductors to China in 2023, Nvidia has developed three chips tailored specifically for the Chinese market.

• The advent of tighter U.S. export controls has helped Chinese technology giant Huawei ($HWT.UL) and startups like Tencent-backed ($0700.HK) Enflame make some inroads into the domestic market for advanced AI processors, potentially eating away at Nvidia's market share. It's a classic case of "when the cat's away, the mice will play".

MACROECONOMICS

China Makes Surprise Rate Cuts🤯

China's Economic Relay Race: It seems China took the "first mover's advantage" quite literally, sprinting ahead of the Federal Reserve in the global rate-cutting race. The Chinese central bank, like an overeager contestant on a dating show, triggered its first rate cut, lowering its benchmark lending rates and a noteworthy short-term policy rate on Monday.

China's Economic Potluck: The rate cuts come hot on the heels of China's top ruling officials completing their once-in-every-five-years third plenum. They're tackling deflation, an ongoing property crisis that's about as stable as a house of cards in a wind tunnel, rising local debt that's growing faster than a teenager's appetite, and weak sentiment from consumers and businesses. Yet, in spite of this smorgasbord of concerns, the government still pledged to meet its 5% GDP growth target for the year. Talk about optimism!

• Last week's data, however, revealed that hitting this ambitious target is about as likely as finding a unicorn in Beijing's Forbidden City. China grew 4.7% in the second quarter, down from 5.3% in the first quarter.

• Additionally, the ongoing property crisis worsened in June, with new home prices in 70 cities falling 0.67%, according to the National Bureau of Statistics, a month after they fell 0.71%.

The Yuan's Slippery Slope: The aforementioned rate cuts have also impacted the Chinese Yuan, sending it on a toboggan ride to a near-two-week low against the US dollar. It's already down over 2.5% this year, performing about as well as a lead balloon in a flying contest. The culprit? Lower interest rates tend to attract less foreign capital and weaken the currency.

• As per Bloomberg's report, a weaker yuan could boost exports and inflation, but would increase the cost of imported commodities and add to the woes of an indebted property sector that has already defaulted on $123 billion in international bonds. It's like trying to fix a leaky boat by drilling more holes - sure, you might go faster, but you're also more likely to sink.

GAMING & MEDIA

Workers Unionize at Microsoft’s Fallout Maker Bethesda ✊

The Rise of the Union: Workers at Microsoft-owned Bethesda Game Studios, known for open-world hits like the "Fallout" and "Elder Scrolls" series, and more recently "Starfield", have unionized. The union, which calls itself OneBGS (not to be confused with a boyband or a new strain of superbug), represents about 240 Bethesda employees across three US locations. It's like they're forming their own guild, but instead of slaying dragons, they're battling for better working conditions.

• What makes OneBGS unique compared to other unions is that it's made up of workers across all teams, rather than a single role. It includes developers, engineers, and artists - a diverse party composition that would make any RPG proud.

Plans are Foiled: This new union has arrived shortly after Bethesda's "Fallout" show on Amazon Prime sparked renewed interest in the franchise. It's as if the workers took inspiration from the post-apocalyptic wasteland and decided to band together for survival. Additionally, the company is aiming to launch extra downloadable content (DLC) for its "Starfield" title, which last year generated nearly $660M in sales.

• Microsoft recognized the union this week, suggesting it's open to negotiations, something which the company has previously handled quite successfully. In 2022, while attempting to purchase the "Call of Duty" maker Activision-Blizzard, it signed a labor neutrality agreement with the Communications Workers of America. It seems Microsoft is playing the long game.

Beating Around the Bush: Unfortunately, there isn't much precedent for these negotiations going successfully at gaming companies, with only one US union having achieved this before (Sega, proving that hedgehogs aren't the only fast things in their company). Given the industry-wide layoffs being witnessed at companies like Take-Two, Sony, and Microsoft, it seems the gaming industry is experiencing more cuts than a director's edition of a four-hour movie. More than half of developers said they've experienced "crunch" - a buzzword for grueling work hours in the months before and after game releases. In response, union efforts heated up.

MORE NEWS

Additional market-moving events🌎

Wiz Walks Away: Cybersecurity startup Wiz rejected Google's ($GOOG) $23B acquisition proposal, opting instead for an IPO to pursue $1B in annual recurring revenue. (The Verge)

Cyber-Shorters: Ever since the global IT outage on Friday, short sellers have made almost $978 million in paper profits from Crowdstrike's 23% two-day drop. (MoneyWeb)

NBA Price Wars: Warner Bros. Discovery tells NBA it intends to match Amazon’s media rights package. (CNBC)

Budget Meals Persist: Most McDonald’s locations will extend the $5 meal deal they offered last month after it helped lure back cash-strapped customers. Burger King, Wendy’s, and other fast franchises launched similar deals. (Reuters)

Wegovy Expands: Novo Nordisk’s Wegovy weight loss drug wins UK approval for use as a heart treatment. (CNBC)

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “superperformers” stock pick which we believe will provide significant outperformance compared to the S&P 500. Then on the 14th of June we released our next stock selection.

Here’s how the stocks have performed since:

• Hims & Hers Health: $22.47 (📈+55.29%)

• PayPal: $60.30 (📉-0.58%)

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