July 7, 2024: Positive Week For Major Indices

Last week, Dow Jones rose 0.7%, S&P 500 1.95% and Nasdaq composite 3.5%. Alameda-Backed miner, Genesis Digital Assets is weighing a US IPO — GDA traces its roots to one of the earliest crypto mining companies and received over US$1 billion worth of investment from the venture arm of Alameda Research. Northern Data is weighing its AI unit’s IPO at up to a US$16 billion value amidst some valuation controversy. Britain’s Revolut surged to a record profit as it seeks a US$40 billion valuation. SoftBank is discussing with banks how to fund investments of up to US$10 billion in energy-related projects, as artificial intelligence drives an enormous increase in demand for power. Tesla’s vehicle deliveries fell for the second quarter in a row but beat Wall Street’s estimates, sending the electric car maker’s stock up more than 8% to its highest price since January. Apple said on Friday it has approved Epic Games’ games marketplace app on iPhones and iPads in Europe. Amazon founder and executive chair Jeff Bezos plans to sell about US$5 billion worth of his stake in the company, his second major round of share sales this year. A U.S. stock rally supercharged by excitement over artificial intelligence is drawing comparisons with the dotcom bubble two decades ago, raising the question of whether prices have again been inflated by optimism over a revolutionary technology. However, tech stocks are more modestly valued now than at the peak of the dot-com bubble, trading at 31 times forward earnings, compared to as high as 48 times in 2000, according to Datastream. OMERS entered into an agreement to sell medical testing company LifeLabs to Quest Diagnostics for $1.35 billion. Canada enacted a Digital-Services Tax amid risks of a U.S. trade retaliation. Sophic Capital, in a series of reports will highlight client, Plurilock, you can read more here.

OMERS sells medical testing giant LifeLabs to American firm Quest Diagnostics for $1.35 billion.

Toronto based public pension fund manager Ontario Municipal Employees Retirement System has entered into an agreement to sell medical testing company LifeLabs to Quest Diagnostics for $1.35 billion (approximately US$985 million). Quest said it expects the LifeLabs transaction to generate approximately $970 million in annual revenues.The transaction is expected to close by the end of the year. OMERS has owned LifeLabs since 2007, but earlier this year The Globe and Mail reported that the pension fund was looking for a buyer after investing more than $2.5 billion into the company. The two potential suitors that surfaced throughout the process were Quest and the Vaughan, Ont.-based medical logistics firm Andlauer Healthcare Group, The Globe and Mail also reported. https://tinyurl.com/yftweara

ISED invests $120 million to build out CMC Microsystems’ semiconductor network.

François-Philippe Champagne, the Minister responsible for Innovation, Science, and Economic Development (ISED) Canada, has announced a $120-million investment into CMC Microsystems to build out a network to support Canada’s semiconductor industry. The investment was made through the Strategic Innovation Fund (SIF) and will support CMC with the creation of the Fabrication of Integrated Components for the Internet’s Edge (FABrIC) network. FABrIC will operate alongside CMC’s cross-Canada partners, looking to unite stakeholders who can support the design, manufacturing, and commercialization of semiconductors, as well as the development of intelligent sensor technology. FABrIC will provide resources to Canadian entrepreneurs and researchers to foster semiconductor innovation, products, and manufacturing processes in Canada, CMC president and CEO Gordon Harling said in a statement. According to the impact targets on FABrIC’s website, the five-year, $223 million project is looking to help launch 75 new companies, file 215 intellectual property applications, and train 25,000 highly qualified personnel in academia. https://tinyurl.com/mryahzcn

Tall Grass Ventures closes $32 million VC fund for early-stage Canadian AgTech startups.

Calgary’s Tall Grass Ventures (TGV) has secured a total of $32 million for its first fund to back early-stage AgTech and foodtech startups across the Prairies, Canada, and beyond. TGV’s leading limited partners (LPs) include the provincially-funded Manitoba First Fund—which joined as part of Fund I’s final close last week—and Farm Credit Canada (FCC). https://tinyurl.com/2bm9vmjf

Canada enacts Digital-Services Tax amid risks of U.S. trade retaliation.

A 3% levy will apply to revenue from companies that provide digital services to Canadian users, or sell Canadian user data. Canada authorized the implementation of a digital-services tax, a move that threatens to trigger trade retaliation from Congress and the Biden administration. A notice published late Wednesday indicated that the cabinet, led by Prime Minister Justin Trudeau, ordered the digital-services tax to be implemented June 28, or last Friday. https://tinyurl.com/3fak9bkt

Alameda-Backed miner Genesis Digital Assets weighing US IPO.

Genesis Digital Assets is considering an initial public offering in the US, according to people familiar with the matter, as the crypto industry’s resurgence gathers pace. The crypto mining company, which counts Sam Bankman-Fried’s former hedge fund as an investor, is working with advisers on the potential listing, the people said, asking not to be identified as the information isn’t public. The company plans to raise a pre-IPO funding round that’s set to launch as soon as in the coming weeks, one of the people said. GDA traces its roots to one of the earliest crypto mining companies. It received over US$1 billion worth of investment from the venture arm of Alameda Research, which was controlled by Bankman-Fried before his empire spectacularly unraveled. GDA has a total power capacity of over 500 megawatts with 20 data centers across North America, Europe, Central Asia and South America, making the company one of the world’s top crypto miners. It has offices in Houston and Dubai, according to its website. The company’s predecessor opened its first facility in Iceland in 2014, and had large-scale mining operations in China before the government there imposed a sweeping ban on the industry in 2021. That year, Genesis Digital Assets raised more than US$550 million and embarked on a rapid expansion in the US. GDA was valued at US$5.5 billion in a fund-raising round in April 2022, according to an internal spreadsheet listing FTX and Alameda’s venture portfolio seen by Bloomberg News. The crypto-mining sector imploded that year as Bankman-Fried’s FTX and Alameda filed for Chapter 11 bankruptcy and digital assets plunged. However, the industry has seen a sharp rebound, led by Bitcoin prices rising over the past year. https://archive.ph/MAv9a

Northern Data weighs AI unit IPO at up to US$16 billion value.

Combined cloud, data center business could list on Nasdaq Company secured financing from Tether Group to buy chips. Northern Data AG is speaking with potential advisers about a US initial public offering of its combined artificial intelligence cloud computing and data center businesses, according to people familiar with the matter. Banks asked to pitch for a role have suggested valuations for the business from about US$10 billion to US$16 billion, the people said. Under the current plan, Northern Data would list an entity comprising its cloud computing activities, dubbed Taiga, and its data centers, called Ardent, on the Nasdaq as early as in the first half of next year, they said. https://tinyurl.com/363zrt3m

Britain’s Revolut surges to record profit as it seeks US$40 billion valuation.

British fintech company Revolut swung to a pretax profit of 438 million pounds (US$553.81 million) in 2023 on strong user growth and interest-related income, against a pretax loss of 25.4 million pounds a year earlier. The company’s revenue almost doubled to a forecast-beating 1.8 billion pounds, its annual report said on Tuesday. The growth comes at an opportune time, with the company seeking a more than $40 billion valuation in a US$500 million share sale. That would cement its place as Europe’s most valuable startup. Revolut has applied for a UK banking licence but three years on is still awaiting approval. Founded in 2015, Revolut is one of a handful of fintech companies to have emerged in Britain over the past decade, offering financial services without having physical branches. It has 45 million customers globally, with customer numbers increasing by nearly 45% last year. Revolut’s customer loan book grew to more than 500 million pounds in 2023, up from 204 million the previous year, the report said. https://archive.ph/uWFf7

SoftBank discusses plan to invest US$10 billion in power-related projects.

SoftBank is discussing with banks how to fund investments of up to US$10 billion in energy-related projects, as artificial intelligence drives an enormous increase in demand for power, The Information reported. The company is also exploring ways to secure access to a large volume of Nvidia’s graphics processing units with bank loans. SoftBank CEO Masayoshi Son wants to make his company a global leader in AI. The previously unreported talks about power and chips highlight the company’s focus on the infrastructure most critical for AI development. SoftBank’s growing interest in energy, including potential breakthroughs in areas such as solar and nuclear technologies, reflects a view that securing enough power for data centers is becoming just as difficult as getting enough AI chips. https://tinyurl.com/387c86uc

Tesla stock rallies as sales results exceed expectations.

Tesla vehicle deliveries fell for the second quarter in a row but beat Wall Street’s estimates, sending the electric car maker’s stock up more than 8% to its highest price since January. Tesla delivered 443,956 cars to customers in the second quarter, down nearly 5% from the same period a year before, the company disclosed Tuesday. The company also slowed down vehicle production, making just 410,956 cars, down 14% from the year before. On the energy side, Tesla’s growing energy storage business hit an all-time high, the company said. It deployed 9.4 Gigawatt hours in the second quarter, up from 3.7 Gigawatt hours the year before. Tesla will release its full second quarter results on July 23. https://tinyurl.com/8s6824ws

Apple’s Schiller to become OpenAI board observer.

Apple will receive an observer role on OpenAI’s board, following the partnership between the two companies announced last month, Bloomberg reported. Under the partnership, Apple is using OpenAI’s technology to power some iPhone AI capabilities. The board observer position, which will take effect later this year, will be filled by Phil Schiller, the head of Apple’s App Store and its former marketing chief, according to the Bloomberg report. It will place Apple in a similar position to Microsoft, OpenAI’s biggest shareholder who also holds a board observer seat filled by executive Dee Templeton. Board observers are not allowed to vote or exercise other director powers, but do get an inside look into how decisions are made at OpenAI. This could put the companies into a tricky position, since Microsoft and Apple could have insight into the other’s AI strategy, as well as OpenAI’s business dealings with both big tech companies. https://tinyurl.com/ykjajfje

Apple okays Epic Games marketplace app in Europe.

Apple said on Friday it has approved Epic Games’ games marketplace app on iPhones and iPads in Europe, after the “Fortnite” maker escalated its feud with the technology giant, accusing it of hindering its efforts to set up a games store on the devices. Apple said the latest spat concerned the Epic Sweden AB Marketplace and has nothing to do with the video games maker’s Fortnite app which has already been given the green light. Before Apple’s announcement, Epic said the iPhone maker had twice rejected documents the video-game publisher submitted to launch the Epic Games Store because the design of certain buttons and labels was similar to those used by its App Store. Epic and Apple have been waging a legal battle since 2020, when the gaming firm alleged Apple’s practice of charging up to 30% commissions on in-app payments on its iPhone Operating System (iOS) devices violated U.S. antitrust rules. Early this year, Apple proposed changes to its App Store policies to comply with certain directives of the DMA that went into force in March. It allowed alternative app stores on iPhones and an opt-out from using the in-app payments system, but set a “core technology fee”, which several developers found exploitative. https://tinyurl.com/24rpere4

Jeff Bezos to sell US$5 billion more worth of Amazon shares.

Amazon founder and executive chair Jeff Bezos plans to sell about US$5 billion worth of his stake in the company, his second major round of share sales this year. Amazon shares have risen 32% this year and hit an all-time high on Tuesday. Bezos’ proposed sale of 25 million shares, disclosed in a filing late Tuesday, follows another sale of 50 million shares in February, his first sale of Amazon stock since 2021. Taken together, the sales mean Bezos will have sold about US$13.5 billion worth of Amazon stock this year. Still, Bezos remains Amazon’s largest shareholder with a roughly 9% stake in the company, according to regulatory filings. https://tinyurl.com/4eppxhzr

Alphabet shuts down mineral Moonshot project.

Alphabet is shutting down agriculture startup Mineral, one of the companies in its portfolio of “other bets,” and will license Mineral’s technology to berry producer Driscoll’s, Bloomberg reported. Alphabet didn’t return a request for comment. Mineral developed specialized software and hardware to help farmers grow crops more efficiently. In January 2023, Alphabet made Mineral an independent company under the Alphabet umbrella, after previously being part of X, Alphabet’s incubator for long-term bets unrelated to Google’s core advertising business. The shutdown comes as Alphabet cracks down on its money-losing moonshot projects, part of a companywide effort to cut costs. Executives at X told staff in January that it didn’t plan to convert its projects into independent companies in the near term, and that existing ones should seek outside capital, The Information previously reported. X also laid off dozens of employees around the same time. https://tinyurl.com/3d24j2tc

Echoes of dotcom bubble haunt AI-driven US stock market.

A U.S. stock rally supercharged by excitement over artificial intelligence is drawing comparisons with the dotcom bubble two decades ago, raising the question of whether prices have again been inflated by optimism over a revolutionary technology. AI fever, coupled with a resilient economy and stronger earnings, has lifted the S&P 500 index to fresh records this year following a run of more than 50% from its October 2022 low. The tech-heavy Nasdaq Composite index has gained over 70% since the end of 2022. While various metrics show stock valuations and investor exuberance have yet to hit peaks reached at the turn of the century, the similarities are easy to spot. A small group of massive tech stocks including AI chipmaker Nvidia symbolize today’s market, recalling the “Four Horsemen” of the late 1990s: Cisco, Dell, Microsoft and Intel. The dizzying run in shares of Nvidia, which gained nearly 4,300% in a recent five-year period, stirred memories of how network equipment maker Cisco surged about 4,500% over five years leading up to its peak in 2000, according to a BTIG comparison of the two stocks. Valuations have grown as well, though many tech champions appear to be in far better financial shape than their dot-com counterparts of the late 1990s and early 2000s. Other measures, such as investor bullishness, have yet to reach the frothy heights of the turn of the century. Echoing the dot-com boom, the information technology sector has swelled to 32% of the S&P 500’s total market value, the largest percentage since 2000 when it rose to nearly 35%, according to LSEG Datastream. Just three companies, Microsoft, Apple and Nvidia, represent over 20% of the index. However, tech stocks are more modestly valued now than at the peak of the dot-com bubble, trading at 31 times forward earnings, compared to as high as 48 times in 2000, according to Datastream. While both stocks have soared, Nvidia trades at 40 times forward earnings estimates, compared to Cisco’s 131 level reached in March 2000, according to Datastream. More broadly, the S&P 500’s price-to-earnings ratio of 21 is well above its historical average but below the roughly 25 level reached in 1999 and 2000, according to Datastream. Dotcom investors were much more euphoric by some measures. Bullish sentiment in the widely followed American Association of Individual Investors survey, often seen as a worrisome indicator at high levels, reached 75% in January 2000, just months before the market peaked. It recently stood at 44.5%, compared to its historical average of 37.5%. https://archive.ph/AZXez

Hedge funds dump tech stocks at fastest pace since 2016, bank shows.

Global hedge funds in June sold U.S. shares of technology, media and telecommunications (TMT) companies at the fastest pace since 2016, mainly driven by semiconductor stocks, Goldman Sachs said in note. The sales could indicate that portfolio managers have become more bearish on tech stocks, after the sector’s powerful rally in the first half of the year, although the note does not provide any reason behind the trend. The bank, which compiles its clients’ positioning for the data, said semiconductor and software were the top two most sold sectors in June, while hedge funds increased their allocation to tech hardware and electronic equipment. Overall, Goldman Sachs said hedge funds net sold global equities for a third straight month, almost entirely driven by short sellers who borrowed shares to sell on bets that the price will decline, enabling them to buy them back for less. “This month’s notional net selling was the largest since June 2022,” the bank said in the note. https://archive.ph/9AqTG

Apple could announce a Google Gemini deal this fall.

Apple will announce “at least” one other deal — to add Google Gemini, too — this fall, according to Bloomberg’s Mark Gurman. Gemini has been part of the iOS 18 chatbot rumors for as long as OpenAI has. Apple software boss Craig Federighi even hinted at a Google deal shortly after the keynote was over. Anthropic has been mixed up in these rumors as well, and Gurman also suggests Apple could announce a deal with that company at some point, if not this fall. Meta, though, was quickly rejected because its Llama chatbot just isn’t good enough, he writes. Beyond chatbot integration lies Apple Intelligence, which is only supposed to emerge, initially, in beta form this fall. Apple reportedly wants to make AI an avenue for direct profits, not just as a set of features aimed at moving hardware products. As part of that, Gurman suggests that the company “could eventually” roll out subscription-only Apple Intelligence features. https://tinyurl.com/3besktkr

Lilly Wins FDA approval for new drug to slow Alzheimer’s.

Eli Lilly & Co.’s Alzheimer’s treatment was cleared in the US as the second drug to slow progression of the mind-robbing disease that afflicts 6 million Americans. It’s a big win for Lilly and its investors, who have been eagerly anticipating the drug since it showed promise in clinical trials more than three years ago. Called Kisunla, the medicine endured a number of regulatory delays on the road to approval. It will compete with Eisai Co.’s Leqembi, which has been available for sale in the US since early 2023. Shares of Indianapolis-based Lilly closed down 0.8% Tuesday in New York. The stock had surged more than 50% so far this year before today amid rapid growth of weight-loss and diabetes sales. Shares of Eisai partner Biogen Inc. fell 1.3%. The Alzheimer’s drug will cost US$32,000 in the first year of treatment, Lilly said. That’s slightly more than the US$26,500 annual price for Leqembi for a person of average size. But doctors can stop the treatment if brain plaques — the toxic material that the drug removes — fall to minimal levels, which they did in many people in trials after about a year. That means that the total out-of-pocket treatment cost of the drug could sometimes be less than other amyloid drugs, Lilly said. In Leqembi’s main approval trial, patients were treated for a full 18 months. https://tinyurl.com/25tmxpkd

Meta’s threads app hits 175 million monthly active users.

Meta Platforms’ X-rival app, Threads, now has more than 175 million monthly active users, Meta CEO Mark Zuckerberg announced Wednesday. That’s up from 150 million users when the company reported its last earnings in April. The app, which is approaching its one-year anniversary, was launched at a time when chaos was engulfing X and Meta saw an opportunity to establish an alternative text-based app. The big difference between the two apps, however, was that Meta did not want to promote discussions about news and political content on Threads—an area that was central to X’s success. The user growth on Threads is helped by the fact that Threads posts are promoted on Instagram, which essentially drives people to the smaller app. And even though the numbers are rising, Meta still faces challenges with the app: Despite a lot of experimentation, Threads has struggled to establish a clear identity, and creators have few ways to make money from it. https://tinyurl.com/3jbvejh8

EU regulators charge meta with breaching new tech rules.

European regulators have taken aim at Meta Platforms’ “pay or consent” advertising model in Europe, saying it breaches the EU’s new tech rules. The move follows a similar action last week against Apple. In preliminary findings published Monday on the European Commission’s website, the Commission said Meta had failed to comply with the Digital Markets Act, a new law that came into effect in March. At issue is Meta’s European ad model, which gives people in that region the option of using Facebook and Instagram for free—and agreeing to have their data collected for advertising purposes—or paying a monthly fee to see ad-free versions of Facebook and Instagram. “This binary choice forces users to consent to the combination of their personal data and fails to provide them a less personalised but equivalent version of Meta’s social networks,” the findings said. A Meta spokesperson said in a statement that “subscription for no ads follows the direction of the highest court in Europe and complies with the DMA.” Meta now has the opportunity to formally respond to the findings. The Commission’s investigation will wrap up next March. https://tinyurl.com/4u95f2jk

Nvidia to face French antitrust charges, according to report.

French regulators are preparing to charge Nvidia for engaging in potentially anticompetitive practices, according to a report by Reuters. The charges would come months after French authorities searched a local Nvidia office as part of an investigation into anticompetitive practices. It’s not clear what charges Nvidia will face. But French regulators last week issued a report on competitiveness in the generative artificial intelligence sector, highlighting concerns that Nvidia could abuse its market dominance in selling AI chips. They include the potential for “price fixing, production restrictions, unfair contractual conditions or discriminatory behaviour,” the report said, without elaborating. https://tinyurl.com/bde3pht6

SEC sues Silvergate capital over compliance claims.

The Securities and Exchange Commission on Monday sued Silvergate Capital and its three former top executives, alleging the California lender misled investors on operational and legal risks from its crypto customers. The bank falsely stated it had an effective compliance program even though it “failed to detect nearly US$9 billion in suspicious transfers” by FTX and its related entities, the SEC alleged in the lawsuit filed in a federal court in Manhattan. Silvergate and two of the executives agreed to settle the SEC claims without admitting or denying the allegations. Silvergate was one of the few crypto-friendly banks in the U.S., but it started winding down in March 2023 after the crypto industry’s meltdown weakened its financial position and caused a liquidity crisis. https://tinyurl.com/35etfkcp

Circle gets stablecoin approval under EU crypto regulations.

Circle, the issuer of U.S. dollar-pegged stablecoin USDC and euro-pegged EURC, announced it’s approved to offer the stablecoins under the new European Union regulations governing digital assets that took effect on June 30. The company obtained an electronic money institution license from the French banking regulatory authority. It’s launching the ability to allow business customers in Europe to create and redeem USDC and EURC. The EU rules, known as Markets in Crypto Assets, or MiCA, are one of the first comprehensive regulatory frameworks for the crypto industry from a major jurisdiction. Some crypto exchanges have started to delist non-compliant stablecoins, such as Tether’s EURT, ahead of the rule. https://tinyurl.com/2s36ns9f

Google reports higher emissions amid AI spending binge.

Google said its emissions of greenhouse gasses rose 13% in 2023 on increased data center energy use and higher supply chain emissions, underscoring the costs of the company’s push to integrate energy-intensive AI features across its products. The disclosure, which Google made in its annual sustainability report Tuesday, is the latest sign of how the AI boom is increasing demand for power and countering efforts to reduce emissions. Some key data center markets, like Ashburn, Va., have run out of power to accommodate AI chips, prompting cloud providers to look to new locales for data center projects. Cloud providers have also been eyeing nuclear power as a way to reduce their emissions footprint and cut energy costs, The Information previously reported. https://tinyurl.com/w5n74k5x

Sophic Client Plurilock (PLUR-TSXV, PLCKF-OTCQB) Report – Digital Defense.

Introducing our newest client Plurilock. For several years, we have witnessed the data revolution. The internet, data, and technology are inextricably linked. In an era of unprecedented data proliferation, the increase in daily internet usage results in greater volumes of data being used, produced, and stored. This volume of information generated each day continues to grow and is showing no signs of slowing down. The exponential increase in data also introduces more threats. The phrase “data is the new oil” reflects the immense value of data as a contemporary asset. Just as there have been global conflicts over precious resources, data is now a critical battleground, albeit in the digital domain rather than on traditional battlefields. As the digital economy expands, cybercrime is escalating in parallel. The surge in online and mobile interactions creates billions of potential vulnerabilities. These often lead to data breaches, posing substantial risks to both individuals and businesses. It is crucial for enterprises and individuals to proactively protect their sensitive information from the increasing threat of exposure and to develop robust strategies to mitigate the impacts of a breaches. In our next report we will discuss the potential market opportunity for Cybersecurity and highlight tailwinds in the sector. https://bit.ly/4bwjeVA