Weekly Reads - June 5, 2023
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The AI hysteria might be coming to an end with insiders and investors cashing in on popular AI names as valuations continue to be stretched with recession fears lingering.
On May 30, Nvidia became the 5th member of the $1 trillion market cap club with shares rising nearly 40% since May 15. The hysteria around AI has driven outperformance across the members of the $1 trillion market cap club (Apple, Microsoft, Alphabet, Amazon, Nvidia) leaving the rest of the market behind. Year-to-date this club has contributed 96% of the 9.5% increase by the S&P 500 and accounts for nearly 18% of the S&P 500 total valuation. The other 495 companies in the S&P 500 posted a combined gain of just 0.3%. While AI fever remains strong, many prominent investors are cashing in on the trend and reallocating capital to cash or more attractive opportunities. Insider ownership at Nvidia is significantly lower than it was last year, indicating that confidence is declining that the company can continue to meet investor expectations as its shares get more expensive. On the corporate side, we have seen recent headlines about Intel selling its stake in Mobileye and Microsoft selling its Buzzfeed stake as shares rose over AI-related news. While the mass media and sell-side will have you believe the AI run-up still has legs, it’s hard to have confidence when insiders, corporations, and early AI investors are finally cashing in.
Apple’s WWDC 2023 might have not delivered the growth catalyst the market was looking for, but it showed Apple’s commitment to experiment with new hardware while continuing to improve the value proposition of its hardware through minor iterations.
Apple’s WWDC 2023 event brought big releases and big questions for Apple fans and investors across the world. The biggest announcement was the Apple Vision Pro Headset, the company’s first foray into VR/AR mixed reality. The Vision Pro, which is expected to retail at an eye-watering price of $3,499 in early 2024 will allow users to control the operating system with finger gestures and voice. Apple has already announced day-one partnerships with Disney+ and will look into creating experiences with popular IPs like Marvel and Star Wars. Apple’s VR strategy is very different than Meta, focusing on delivering a premium product to a small niche of users who can afford to pay that price. The announcement was met with mixed reviews with some outlets claiming the product is the next evolution of VR/AR and others criticizing the product’s price vs alternatives. Meta’s recently announced Quest 3 VR headset is 1/7th the price of the Vision Pro and is very competitive technology-wise so questions remain on the sales potential for such an expensive device. The company’s other announcements included the MacBook Air, MacBook Studio, MacBook Pro, IOS 17, Watch OS 10, and MacOS Sonoma. Out of these announcements, the most interesting was Apple’s MacOS Sonoma which seeks to improve the gaming capabilities of Mac devices, which have always been subpar compared to Windows and turning websites into app-like experiences. These improvements could shore up some of Mac’s key weaknesses making the product more attractive to Windows users who traditionally have ignored Mac as a viable alternative.
If the race to acquire value-based healthcare assets continues to ramp up, we could see a wave of bidding wars across the healthcare market that could destroy shareholder value if acquirers are not careful on what price they are paying for these assets.
The healthcare M&A market continues to heat up with UnitedHealth announcing their intention to acquire home health and hospice company Amedisys. Just a month ago, Amedisys agreed to be bought by Option Care Health for $3.6 billion which was expected to close in the second half of 2023. UnitedHealth is offering a $100 per share all-cash offer for the company a 2.6%premium to Option Care Health’s offer of $97.38 per share. Amedisys provides home health, hospice, and palliative care services with 522 care centers in 37 states. The original deal with Option Care Health would create a massive provider of post-acute care services with $6.2 billion in annual revenue and 674 care centers in 46 states. As of now the deal with Option Care Health has not been terminated, but Amedisys is considering the UnitedHealth deal which could spark a bidding war for the company creating more value for current shareholders. UnitedHealth views the Amedisys acquisition as a way to accelerate its goal of providing seamless value-based in-home care which would reduce the cost of care and improve the patient experience. The healthcare space has become an arms race in which traditional and non-traditional healthcare companies are acquiring healthcare assets that help drive lower system-wide healthcare costs.