Day: September 25, 2024

(Reuters) -The U.S. is investigating German software firm SAP, U.S. IT services provider Carahsoft Technology, and others in a civil probe for potentially conspiring to overcharge government agencies over the course of a decade, Bloomberg News reported late Tuesday.

The U.S. Department of Justice (DOJ) lawyers have been investigating since at least 2022 whether SAP illegally conspired with Carahsoft to fix prices on sales to the U.S. military and other parts of the government, Bloomberg said, citing federal court documents filed in Baltimore.

In an emailed statement, SAP said it was under a civil investigation by the DOJ and did not disclose further details.

“All we can say is that there has been a civil investigation by the DOJ, and SAP has been cooperating with the investigation since the beginning,” the German firm said. The company was not aware of any criminal investigation, it added.

SAP shares fell 3.3% to 200.1 euros on Wednesday.

Bloomberg reported that the civil probe is focused on the companies possibly rigging the market for the more than $2 billion worth of SAP technology that the U.S. government has purchased since 2014.

The DOJ lawyers are also examining the role of other software resellers and a unit of Accenture, the report added, citing court documents.

An Accenture spokesperson told Bloomberg that the unit, Accenture Federal Services LLC, “is responding to an administrative subpoena and is cooperating with the DOJ.” The firm did not respond to a Reuters request for comment.

On Tuesday, Bloomberg reported that U.S. federal agents had searched the Washington-area offices of Carahsoft. The company told Bloomberg that the investigation was into a company with which it had done business in the past.

Carahsoft did not respond to a request for comment outside regular business hours. Bloomberg said it was not clear if the search was related to SAP.

(Reporting by Angela Christy and Shubham Kalia in Bengaluru; Editing by Abinaya Vijayaraghavan)

Although all eyes have seemingly been on the Federal Reserve and monthly inflation reports of late, what can arguably be described as the most important data release of the third quarter occurred roughly six weeks ago.

On Aug. 14, institutional investors with at least $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission. A 13F provides investors with an over-the-shoulder look of which stocks Wall Street’s most-successful money managers purchased and sold in the most recent quarter (in this case, the June-ended quarter).

While 13Fs have their noted flaws — they’re 45 days old when filed, thus providing stale information for active hedge funds — they can still offer invaluable guidance as to which stocks, industries, sectors, and trends have the undivided attention of Wall Street’s greatest investment minds.

Aside from seeing what Wall Street’s most-prominent investors has been up to, such as Warren Buffett at Berkshire Hathaway, investors tend to play very close attention to what billionaire David Tepper and his team have been up to at Appaloosa. That’s because Tepper’s fund has posted a gross annualized return of more than 28% in the 30-year stretch from its inception in 1993 through 2023.

Interestingly, Tepper and his team were big-time net-sellers of equities during the second quarter, with nine positions being added to, two positions completely closed, and 26 reduced. Perhaps none of these reductions stand out more than artificial intelligence (AI) leader Nvidia (NASDAQ: NVDA).

David Tepper slashed his fund’s stake in AI colossus Nvidia — and probably for good reason

Tepper’s Appaloosa closed out the March-ended quarter with 4.42 million shares of Nvidia. Between the start of April and the end of June, amid Nvidia’s historic 10-for-1 stock split and its march to an all-time intra-day high of $140.76 per share, Tepper oversaw the disposition of 3.73 million shares, or 84.39% of his fund’s previous stake.

While some of this selling activity likely had to do with locking in profits on a position that’s up substantially since it was initiated in the first quarter of 2023, there are a number of other reasons Tepper and his team likely jettisoned most of their stake in Nvidia.

For starters, there are viable reasons to believe an AI bubble is brewing. No company on the leading edge of a next-big-thing technology or innovation for 30 years has escaped a bubble-bursting event. With most businesses lacking well-defined plans to generate a positive return on their AI investments anytime soon, it looks as if investors have, once again, overestimated the uptake and utility of a new technology. If the AI bubble bursts, no company would take it on the chin more than Nvidia.

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Tepper and his team at Appaloosa may also be expecting competition to ramp up in the AI arena. Though Nvidia’s graphics processing units (GPUs) accounted for a roughly 98% share of those shipped in 2022 and 2023 to data centers, external competitors are ramping up production of their AI-GPUs.

Furthermore, all four of Nvidia’s top customers by net sales are working on AI-GPUs for use in their data centers. Even though Nvidia’s hardware should retain is computing superiority, the cost and supply advantage of using internally developed chips means Nvidia is going to lose out on future orders.

Insider selling is yet another reason Appaloosa’s brightest investors might be souring on Nvidia. While there are a number of reasons to sell stock, some of which are benign, the only reason to purchase shares on the open market is because you think they’ll head higher. The last time an Nvidia insider bought shares of their company’s stock on the open market was December 2020!

The final piece of the puzzle is that David Tepper traditionally focuses on undervalued or distressed assets. Right now, the stock market is historically pricey. When equities eventually roll over, which is what happens when valuations become extended, companies with lofty premiums, such as Nvidia, are often hit the hardest.

But what’s even more interesting than billionaire David Tepper dumping most of his fund’s stake in Nvidia is the exceptionally cheap cyclical stock he chose to pile into during the June-ended quarter.

Billionaire David Tepper can’t stop buying this historically cheap consumer cyclical stock

Though Tepper and his team added to nine existing positions in the second quarter, the one that really stands out is the 660,737 shares purchased of China’s No. 2 e-commerce company, JD.com (NASDAQ: JD). This increased Appaloosa’s stake by a little over 18% and lifted the fund’s holding to 4,310,600 shares, which is worth about $116 million, as of this writing.

China stocks have absolutely hit a rough patch over the past couple of years. Stringent provincial lockdowns and mitigation measures during the COVID-19 pandemic resulted in all sorts of supply chain problems for the world’s No. 2 economy.

To add, China’s regulatory climate is strict and unpredictable. Even with faster economic growth, investors tend to be leery about paying higher multiples for China-based stocks given regulatory unknowns.

Nevertheless, JD has a number of long-term catalysts in its sails, and its stock is jaw-droppingly cheap.

The obvious catalyst for JD is that China’s economy usually grows at a faster pace than most developed countries. While the economic ramp-up since COVID-19 restrictions were lifted in December 2022 has been disappointing, the Chinese economy should find its footing relatively soon.

Building on this point, China is still in the relatively early stages of expanding the reach of e-commerce to its burgeoning middle class. Whereas e-commerce is a mature concept in the U.S., it can still offer substantive growth in the world’s No. 2 economy.

On a more company-specific basis, JD appears better equipped to deliver superior long-term margins when compared to China’s leading online retail sales platform, Alibaba. Whereas the latter generates the bulk of its revenue from acting as a third-party marketplace, JD operates more like Amazon. In other words, it controls the inventory and logistics needed to get products to consumers, once ordered. Being able to control more aspects of its network should allow JD to outpace Alibaba on the margin front.

JD is also generating enough cash flow and has deep enough pockets to branch into new ventures. Aside from its Logistics operations, it has a Health division, and has been aggressively investing in AI to improve various facets of its company. This includes leaning on AI to make predictions about its supply chain and inventory.

Lastly, JD is swimming in cash. It closed out June with $28.8 billion in cash, cash equivalents, short-term investments, and restricted cash, compared to $8.6 billion in short- and long-term debts and unsecured senior notes. That’s just over $20 billion in net cash for a company with a $41 billion market cap.

As of the closing bell on Sept. 18, shares of JD were trading at just 6.5 times consensus earnings per share for 2025 — and this doesn’t account for nearly half the company’s value being tied up in cash. It’s an incredible bargain that billionaire David Tepper is smart to pile into.

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Billionaire David Tepper Sold 84% of Appaloosa’s Stake in Nvidia and Is Piling Into This Historically Cheap Cyclical Stock was originally published by The Motley Fool

Financial watchdogs charged a 56-year-old New Yorker with insider trading on Tuesday, alleging the executive knew in advance that Foot Locker’s disappointing earnings would trigger a stock selloff. In total, authorities said the exec made about $113,000—and now he has to pay it back double, according to a pending settlement deal.

Per the Securities and Exchange Commission, Barry Siegel shorted the sneaker and apparel brand’s stock twice, once while he still worked as a senior director of order planning and management, and a second time after Foot Locker terminated him in a round of corporate layoffs. Siegel had worked at the company a total of two decades at that point, and authorities said he knew there would be negative sales and inventory data in earnings calls with investors.

According to the SEC’s complaint, Siegel short-sold 8,000 shares of Foot Locker’s stock in May 2023, just two days before the company’s first-quarter earnings announcement. Typically, a short sale is a bet that a stock price will fall. An investor borrows shares at the current market price, hopes the stock nosedives, and buys back the same number of shares at the lower price and profits. In Siegel’s case, the sneaker and athletic retailer’s stock price fell 27% after it announced earnings before the market opened on May 19. At 9:31 a.m. that same day, Siegel allegedly made about $83,000 after he bought stock to cover his short position.

His second transaction was in August 2023, about a week after Foot Locker laid him off, authorities said. Siegel sold short 3,000 shares before the company’s second-quarter earnings went out and Foot Locker’s stock price fell 28%. That time, Siegel made $30,132, the SEC said.

Foot Locker, founded in 1974 and known for carrying major brands like Nike, Adidas, Puma, and limited-edition kicks, has struggled in recent years amid a slowdown in mall traffic; it announced plans to close 400 stores by 2026. The plan is part of a vision to focus more on sneaker hype and experimental concept stores and pivot away from shopping malls.

Siegel has neither admitted nor denied the charges and he agreed to pay back the $113,000 he made shorting the stock, plus interest, on top of a $113,000 fine. He is also barred from serving as an officer or director of a public company.

An SEC spokesperson declined to comment beyond the details in the press release. Siegel did not immediately respond to a request for comment.

This story was originally featured on Fortune.com

Intel (INTC) revealed a pair of artificial intelligence chips on Tuesday as it seeks to improve its data center business and steal market share from rivals AMD (AMD) and Nvidia (NVDA). The new chips, the Xeon 6 CPU and Gaudi 3 AI accelerator, promise improved performance and power efficiency and come at a time when Intel is trying to prove it has what it takes to be a major player in the AI space.

The announcement follows a Wall Street Journal report that Qualcomm (QCOM) is looking into a potential takeover of Intel to bolster its own chip business. Bloomberg, meanwhile, reported that Apollo Global Management is interested in making a multibillion-dollar investment in the chipmaker that would back Intel CEO Pat Gelsinger’s massive turnaround plan. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)

Intel says the new Xeon 6 chip offers P-cores, or performance cores, and says it features twice the performance of its predecessor. The chip, according to the company, is built for AI and high-performance compute scenarios including edge and cloud systems.

The Gaudi 3 processor, on the other hand, is purpose-built for generative AI applications and will compete directly with Nvidia’s H100 and AMD’s MI300X line of chips. Intel says IBM (IBM) is using its Gaudi 3 accelerators as part of its IBM Cloud with the goal of offering a lower overall total cost of ownership.

“Demand for AI is leading to a massive transformation in the data center, and the industry is asking for choice in hardware, software, and developer tools,” Justin Hotard, Intel’s executive vice president and general manager of its Data Center Artificial Intelligence Group, said in a statement.

“With our launch of Xeon 6 with P-cores and Gaudi 3 AI accelerators, Intel is enabling an open ecosystem that allows our customers to implement all of their workloads with greater performance, efficiency, and security.”

Intel was also quick to point out that 73% of GPU-accelerated servers, servers designed to power AI applications, use Xeon chips as the host CPUs they need to function properly. But Intel’s chips aren’t the hot tickets they once were. Companies instead are trying to get their hands on Nvidia’s line of AI chips, sending that company’s stock price soaring.

Nvidia’s stock price is up a staggering 142% year to date, while Intel shares have fallen a whopping 52%. AMD shares are up 12% in the same time period.

During its latest quarterly earnings report in August, Intel reported worse-than-anticipated revenue and earnings per share and provided a disappointing outlook for its current quarter. The company also said it would cut 15% of its workforce and suspended its dividend payments.

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Gelsinger is attempting to return Intel to its former glory by pushing its teams to build more advanced chips for the data center and consumer PCs while simultaneously building out its manufacturing capabilities.

Intel hopes to dramatically expand its chip fabs, the facilities where it produces chips, both in the US and abroad. But the company announced last week that it will put construction of planned plants in Europe on hold and that it won’t start up its advanced packaging plant in Malaysia until demand for chips picks up.

Intel offered some good news last week as well, saying that it will build custom chips for Amazon (AMZN), joining Microsoft (MSFT) as another marquee client for the company’s nascent third-party chip manufacturing business.

The firm also said it is separating its foundry segment from its design business to provide a clearer separation between the two entities, giving potential customers greater peace of mind that Intel’s design team wouldn’t have access to their own chip designs.

But Intel’s struggles amid the turnaround have made it a takeover target for the likes of Qualcomm, which could use the company to significantly expand its chip business into the data center and PC businesses.

Qualcomm relies heavily on its smartphone segment. But smartphone sales have slowed over the years as customers have begun holding on to their handsets longer, leading Qualcomm to look for new growth opportunities.

One such opportunity includes building laptop chips meant to rival Intel’s own line of processors. It will, however, take a good deal of time for Qualcomm to chip away at Intel’s PC market share if it manages to do so at all.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.

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There’s an incredibly risky two-pronged trend in the housing market. Insurance companies are refusing to cover properties because they’re located in severe weather zones or because the housing stock is old. And banks won’t give you a mortgage because of the same risk. The outcome is a further divided housing market—traditional homes that can be insured and mortgaged and a burgeoning segment of properties that can only be sold for cash and at a deep discount, if at all.

An estimated $1.6 trillion in property value of uninsured homes was at risk three years ago and 6.1 million homeowners were uninsured, concluded a report published this year from the Consumer Federation of America. It’s only grown worse since then, even if that is the most recent data available. And yet, such homes can still sell. According to Axios, “uninsurable homes still change hands on the housing market.” You can’t take a mortgage out on them, but you can pay all-cash, and probably receive a steep discount, the publication reported.

I don’t have to tell you how much of a risk it is to have an uninsured property. It may be less so if you’re a billionaire who wants a stunning view and has cash to burn. But for typical Americans living in California, Florida, Texas, or other states vulnerable to severe weather, not so much. More often than not, these are low-valued homes and low-income households that go uninsured. They may choose to go without insurance if they can’t afford rapidly rising premiums or if they simply can’t find an insurer to cover them. Even so, places such as California and Florida have their own last resort forms of coverage, whether it be the FAIR Plan for the former and Citizens for the latter.

What you need to know is there’s an insurance crisis unraveling across the country, especially in those states mentioned above. In California, property insurers are capping the number of policies they write or refusing to write new ones. In Florida, multiple home insurers have fled the state. Insurance woes have made it much harder for homeowners and homebuyers dealing with skyhigh prices and mortgage rates.

The president of CoreLogic’s global insurance solutions business, Garret Gray, once told me his house in a Los Angeles canyon was nearly uninsurable. “It’s got a really bad CoreLogic fire score,” he said. He almost backed out of the deal before he made some changes to make the home insurable. The thing is, some people might not back out of the deal. Instead, they might attempt to get a better deal from the seller.

Then there’s Jason Damm, an assistant professor of professional practice of finance at the University of Miami and a landlord in the city. He once told me that after renewing his insurance earlier that year, his premium went up. That was before the insurer sent him a notice that it was pulling out of the state and his policy was canceled. At the time, he was without insurance and hadn’t decided what to do because of how costly and difficult it was to find coverage. “I don’t have insurance on the house, which is quite dangerous,” Damm previously said. “I’ve been looking. It’s very expensive, so I’m trying to decide what to do. It’s a huge problem. I mean, I don’t know what I’m going to do with it, whether I’m going to try and find a policy or just go without insurance.”

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It’s not just him. Miami happens to have the highest share of uninsured homeowners, about 15% worth, and its home values haven’t fallen at all. All the while, the city is extremely vulnerable to climate related events, which costs the entire country billions of dollars a year. So it seems people are still buying and selling homes in Miami, insured or uninsured.

This story was originally featured on Fortune.com

“As long as I’m not the richest man in the world, I won’t really be happy,” Bernard Arnault once said.

The day has come. Arnault, the founder and CEO of luxury goods conglomerate LVMH, went from being the richest person in the world to the fifth-most after a 20% drop in his company’s stock price, resulting in a $54 billion cut of his net worth.

Arnault, who oversees dozens of prestigious brands including Moët Hennessy, Louis Vuitton, Dior, Givenchy, and Fendi, was worth an estimated $231 billion in late March, according to the Bloomberg Billionaires Index. That placed him ahead of Tesla CEO Elon Musk, Amazon founder Jeff Bezos, and Meta CEO Mark Zuckerberg.

As of Monday, Arnault was worth an estimated $177 billion. Now, Arnault ranks lower than each of those executives, plus Oracle co-founder Larry Ellison. In the past year, LVMH stock has dropped over 16%, and is currently trading at about $132 per share; Arnault owns about 48% of the luxury conglomerate. Since the start of 2024, Arnault’s net worth is down $30 billion, making him the biggest loser on the list year-to-date.

LVMH did not respond to Fortune’s request for comment.

What’s happening at LVMH?

During the first half of 2024, LVMH reported a modest dip in revenues, but its wine and spirits divisions fared even worse.

“Maybe the current global situation, be it geopolitical or macroeconomic, doesn’t lead people to cheer up and open bottles of champagne,” Jean-Jacques Guiony, LVMH’s chief financial officer, said during the company’s earnings call in late July. “I don’t really know. The matter of fact is, is that our volumes are down double digits.”

But it’s not just LVMH that’s had a tough time in today’s market. Other major luxury brands and holding houses have reported losses this year. In fact, luxury revenues were flat during Q2 2024, the slowest growth in 15 quarters, according to a Bank of America note about luxury goods released Monday. Demand deteriorated during July, and August and September have also slowed.

Michael Kors, housed under Capri Holdings, saw its first quarter revenue drop more than 14% year-over-year, according to Capri’s first quarter fiscal 2025 results posted Aug. 8.

“Sometimes you’ll be the hottest thing on the block,” Michael Kors said in his testimony during an $8.5 billion antitrust trial involving Capri Holdings and Tapestry. “Sometimes you’ll be lukewarm. Sometimes you’ll be cold.”

Bernard Arnault’s net worth

While Arnault has lost a tremendous amount of wealth this year as the result of the struggling luxury market, with a net worth of $177 billion, he’s still wealthier than former Microsoft CEOs Bill Gates and Steve Ballmer, as well as Warren Buffett, Michael Dell, and Nvidia CEO Jensen Huang.

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Plus, Arnault has stayed active in investing this year. His family office has invested in five AI-focused startups this year amounting to hundreds of millions of dollars. Plus, in July, he joined the chase to acquire Venice’s iconic Hotel Bauer for $305 million—but got outbid.

Arnault, 75, isn’t ready to leave his post: He forced his board to extend the retirement age for its chairman and CEO from 75 to 80 so he could stay longer. But he received a letter from 93-year-old Warren Buffett saying he should’ve made the age limit higher, according to Bloomberg. Still, Arnault says he’s working 12-hour days.

“Every morning I have fun when I arrive,” Arnault told Bloomberg.

This story was originally featured on Fortune.com