Big Tech’s dominance is under threat. Do investors care? #Breaking112
It’s a direct challenge to one of Silicon Valley’s most powerful corporations. And it could have major consequences, given the focus on Facebook’s acquisitions of Instagram and WhatsApp. Though the court battle is likely to play out over a period of years, a breakup of the company is on the cards.
But for now, the market obsession with high-growth tech companies — which has driven the Nasdaq Composite up nearly 38% this year — shows no sign of fading.
“The market is not valuation sensitive right now,” David Erickson, a finance professor at the University of Pennsylvania’s Wharton School, told me.
Given the low interest rate environment, investors are flocking to stocks — and they see fast-growing tech firms generating high returns as the place to be, added Erickson, who previously worked as co-head of global equity capital markets at Barclays.
Even Facebook’s stock looks fairly teflon, despite the growing risks to its business. Shares fell 2% on Wednesday, and are off 1% in premarket trading.
“We believe a breakup is unlikely [and] see this as a buying opportunity,” JPMorgan analyst Doug Anmuth said in a note to clients.
Wall Street likes what Starbucks is selling
It may seem like there’s already a Starbucks on every corner. But the company is planning to add tens of thousands of locations in the coming decade as it prepares for a post-pandemic world, my CNN Business colleague Danielle Wiener-Bronner reports.
The company is betting that by flooding the market with new types of stores, including smaller locations and ones with drive-thru and curbside pickup, it will be able to steal more customers from the competition.
“Though we are growing off a large base, there is ample room to expand in regions where the Starbucks brand is less penetrated,” said Roz Brewer, the company’s chief operating officer.
New formats will also help reduce congestion in city locations, boosting sales there, she added.
The company has been struggling to regain the business lost due to Covid-19, which has disrupted commuting routines as many office employees work from home. Globally, sales at Starbucks stores open for at least 13 months fell 9% in the three months that ended on Sept. 27, compared to the same period last year.
But Wall Street seems confident in the company’s way forward. Starbucks also intends to rely more on technology, after having successfully used loyalty programs to learn more about their customers and spur repeat purchases.
Investor insight: Starbucks shares hit an all-time high last Friday, and are up more than 3% in premarket trading Thursday. Maybe investors like the expansion plans — or maybe they’re just excited for a national rollout of the company’s oat milk.
China’s state-owned firms are in trouble. It’s a global problem
State firms defaulted on a record 40 billion yuan ($6.1 billion) worth of bonds between January and October, according to Fitch Ratings. That’s about as much as the last two years combined.
The problem has only gotten worse in recent weeks. A slew of major companies — including BMW’s Chinese partner Brilliance Auto Group, top smartphone chip maker Tsinghua Unigroup, and Yongcheng Coal and Electricity — declared bankruptcy or defaulted on their loans, sending shock waves through the nation’s debt market.
Bond prices have plummeted and interest rates have spiked. The turmoil has even spilled over into the stock market, where shares of state-owned firms have been sinking.
Big picture: The success of the state sector, which has historically been considered a safe bet, is critical to China’s financial system. While such firms contribute less than a third of GDP, they account for more than half of the bank loans offered in China and some 90% of the country’s corporate bonds.
Issues here could ultimately drag down the country’s fragile recovery. And given that China is the only major economy forecast to grow this year, and is expected to help drive next year’s rebound, they should be a global concern.
The European Central Bank makes its latest policy announcement, followed by a press conference with President Christine Lagarde.
- Costco (, )Lululemon ( and )Oracle ( report results after US markets close. )
- Initial applications for unemployment benefits for last week post at 8:30 a.m. ET. Economists surveyed by Refinitiv expect an additional 725,000 claims, a slight increase from the previous week.
Coming next: UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen have given negotiators until Sunday to reach a Brexit trade agreement. Is there room for a deal?