- Nvidia, the leading chip manufacturer in the AI sector is facing discussions about its highly inflated valuations. The company's dominance in semiconductors powering AI programs like ChatGPT has made it the top-performing stock in the S&P 500. However, Nvidia's valuation has reached unprecedented levels, with a market value exceeding $1 trillion, and a P/E ratio of 221! This surge in valuation draws comparisons to Cisco Systems, which experienced a similar situation over two decades ago before the dot-com bubble burst. Despite tripling its sales, Cisco was unable to maintain its market value milestone, with a substantial decline of 89 percent and a price-to-revenue ratio dropping to around four times. The same fate does not await all AI stocks, but it is a sobering reminder that even a great company/thematic bought at highly inflated valuations, makes for a poor investment.
- Life is expected to get more expensive, as economists brace for a July rate rise, pushing the existing cash rate up to 4.35% from the current 4.1%. So, what does that mean for you? As interest rates rise, the cost-of-living increases. How? Higher interest rates = higher borrowing costs for home mortgages and higher borrowing costs for businesses. These higher borrowing costs are then passed on to renters and consumers. The cash rate is a blunt instrument deployed by the RBA, and is used to put pressure on the market, and it’s starting to take effect. So why would the RBA (Reserve Bank of Australia) be pricing in increased interest rates? Because the Australian labour market remains tight, and inflation remains sticky – despite all existing interest rate rises. Data released this week shows 75,900 people found work in May, four times higher than economists’ expectations of 17,500!
- Gina Rinehart, Chairman of Hancock Prospecting Pty Ltd, is nearing the acquisition of her inaugural lithium mine, which is set to provide 75 percent of its output to India. Through a joint venture involving Hancock, NMDC-backed Legacy Iron, and Hawthorn Resources, the Mt Bevan project will receive an initial investment of $4 million from Hancock in exchange for a 7.5 percent stake. If specific exploration and development milestones are achieved, Hancock can increase its ownership to 51 percent by investing an additional $22 million. This joint venture aims to be the catalyst driving 30 per cent of all new electric car sales in India by 2030.
- Domino's is grappling with inflationary challenges, as it struggles to pass on increased costs to customers who are already facing higher living expenses. This has led to a significant decline in the company's shares, losing $241 million in market capitalization and reaching a four-year low. To address these issues, Domino's plans to close 70 underperforming locations, abandon its expansion into Denmark, shut commissary stores in South-East Asia, and dissolve its local construction subsidiary in Brisbane. These measures, along with the sale of corporate-owned stores at discounted prices to franchisees, are expected to result in annual savings of approximately $53 million to $59 million. However, a portion of these savings will be reinvested in franchises, and the company anticipates non-recurring costs of $80 million to $93 million over the current and next financial year.
