Vested Shorts: Nasdaq’s 4.9% weekly jump, SoftBank’s AI chip gamble, Google faces breakup, $30B for chip manufacturing, Ethereum ETFs hold strong

In today’s edition,

• SoftBank seeks AI chip manufacturing partner
• Is Google headed for a breakup?
• S&P 500 ETF hits $210M inflow on tech stock investment
• US Chip manufacturing boost
• Ethereum ETFs stand strong amid market shifts

Market Snapshot

Wall Street rebounded this week, its first gain since mid-July. It was driven by strong retail earnings, easing inflation, and falling jobless claims. The S&P 500 gained 3.8%, closing at 5,554.25, while the Dow rose 2.8% to 40,659.76. The Nasdaq led with a 4.9% jump, finishing at 17,631.72.

Investors are now focused on the upcoming Jackson Hole Economic Policy Symposium, where Fed Chairman Jerome Powell will speak, and the release of the July Fed meeting minutes, which could influence market sentiment in the weeks ahead.

Stock market closing data for the week of Aug 12th to Aug 16th, 2024

News Summaries

SoftBank’s (Explore: SFTBY) efforts to develop a competitive AI chip have hit a roadblock. The company was in talks with Intel to produce a chip that could challenge Nvidia’s dominance in the GPU segment (see Figure 1). However, these negotiations failed because Intel couldn’t meet SoftBank’s demands for production speed and volume. Intel’s struggles, including a $7 billion loss in its manufacturing division and plans to cut 15% of its workforce, compounded the issue. As a result, SoftBank has turned to Taiwan Semiconductor Manufacturing Co. (Explore: TSM) as a potential partner. However, TSMC, which counts Nvidia as its second-largest revenue-generating customer (over 10% of TSMC’s revenue, next to Apple’s 25%), is already stretched thin by existing commitments (see Figure 2). This shift has introduced further complexities to SoftBank’s plan. Despite these obstacles, CEO Masayoshi Son remains committed, to exploring partnerships and financing options, including discussions with investors from Saudi Arabia and the UAE. The situation underscores the significant financial and logistical challenges in the highly competitive AI chip market, where the stakes are immense.

Figure 1: IC market share leaders. Source

Figure 2: Global foundry market share. Source

Investors are pouring money back into mega-cap tech stocks. On Aug 12th, the Invesco S&P 500 Top 50 ETF (Explore: XLG) saw a record $210 million inflow, the largest one-day influx in the fund’s nearly 20-year history. This pushed the ETF’s total assets to $5.3 billion, with almost half of that accumulated over the past year. The rush into XLG shows investors still trust large-cap growth stocks, especially in tech. This is despite recent market volatility caused by concerns over high valuations and the timing of AI investment returns. Tech stocks continue to attract attention. Experts cite their strong margins, cash flows, and returns on equity. With economic uncertainty ahead, investors are drawn to these robust sectors. Hence, buying high-quality tech stocks when prices drop is a strategic move.

After a court ruled that Google (Explore: GOOG) monopolized the online search market, the US Justice Department is now considering breaking up Alphabet Inc.’s Google as a potential remedy. This would be the first major US attempt to break up a monopoly since the Microsoft case two decades ago. Other options include forcing Google to share more data with competitors. Or, preventing it from using its search dominance to gain an unfair edge in AI. The most discussed breakup scenarios involve divesting the Android operating system, the Chrome browser, or AdWords, which generates significant revenue through search ads. These talks, if approved by the judge, could reshape the tech world.

Texas Instruments will receive up to $1.6 billion from the US Commerce Department under the CHIPS and Science Act (see Figure 3) to help fund the construction of three new semiconductor facilities. This funding aims to boost U.S. chip production and cut reliance on foreign sources, like Taiwan. The company has committed over $18 billion to these projects through 2029, expecting to create 2,000 manufacturing jobs. Texas Instruments expects $6 to $8 billion in tax credits from the US Treasury. It also expects $10 million for workforce development. This supports its plan to expand manufacturing to meet the rising demand for analog and embedded processing chips across industries.

Figure 3: Funding received under CHIPS and Science Act. Source

From the World of Crypto

Last month, after getting regulatory approval, Ethereum ETFs debuted. They attracted $11 billion in investments. We detailed this launch, emphasizing its market impact. Now, three weeks after the launch, the Grayscale Ethereum ETF (ETHE) experienced its first day on August 12th (see Figure 4) with no outflows, signalling an important shift in the market.

Figure 4: Inflow and Outflow Data for Various ETH ETFs. Source

ETHE’s outflows have steadily decreased since its launch. This suggests major sellers may have exited. In contrast, Grayscale’s Bitcoin ETF took nearly four months to reach this point. Meanwhile, ETHE achieved it in just three weeks. This reflects growing investor confidence in Ethereum.

This trend is particularly noteworthy given Ethereum’s unique supply dynamics. Unlike Bitcoin, Ethereum has a burning mechanism. It reduces its supply with usage. About 40% of ETH is locked in smart contracts, which lowers the circulating supply. With ETF-driven demand for ETH rising faster than expected, conditions are favorable for price growth. Fewer new ETH tokens are entering the market. If the Fed cuts interest rates, creating a risk-on environment, ETH could see more inflows. This could sustain its positive momentum.

As the market evolves, understanding these investment opportunities becomes crucial. Explore how to invest in Spot Ethereum ETFs from India.