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| Greetings, Here's your daily business briefing. - Warren Buffett publishes the annual letter to shareholders.
- Figure AI attracts interest from market heavyweights.
- Nikkei makes a new all-time high after 35 years.
Thanks for reading! Stjepan
p/stjepan-kalinic | |
| 1 | | Warren Buffett published the annual Berkshire Hathaway shareholder letter, offering homage to his late partner, Charlie Munger, who passed away last November. Buffett announced Berkshire's annual gathering in Omaha, Nebraska, scheduled for May 4. More: - Buffett dubbed Munger as the "architect" of the present Berkshire and an inspiring "part older brother, part loving father" who pushed him away from buying fair businesses at wonderful prices to buying wonderful businesses at fair prices.
- When speaking about the magnitude of Berkshire's operations, Buffett noted that the company now occupies nearly 6% of the universe (S&P 500) in which it operates. He pointed out that it owns either a portion or 100% of various businesses that, on a weighted basis, have somewhat better prospects than exist at most large American companies.
- Buffed reflected on his investments in Japan, stating that Berkshire has more yen-denominated debt outstanding than any other American company. He praised five Japanese investments (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo), stating that they follow shareholder-friendly policies.
- He admitted he had high expectations for BNSF Railway and Berkshire Hathaway Energy, which didn't come true. He outlined capex issues with railways and the mental burdens of jobs in that industry. Furthermore, he mentioned climate change's impact on the energy sector- best seen in California and Hawaii- clarifying that America's power utilities require a staggering capex level.
Berkshire's Numbers: - Q4 operating earnings increased by 28% compared to the previous year, driven by insurance underwriting and investment income improvements. The company reported operating income of $8.48B in Q4, up from $6.63B a year ago.
- During the quarter, Berkshire Hathaway doubled its common stock repurchases to $2.2B, compared to $1.1B in Q3. The total repurchases for 2023 reached $9.2B, indicating the company's commitment to returning value to shareholders.
- Cash and short-term securities reached approximately $167.6B as of December 31, 2023, marking an increase from $157B at the end of September 2023. The substantial cash position reflects the company's liquidity strength.
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| 2 | | Figure AI Inc., a startup focused on developing human-like robots, is securing approximately $675M in a funding round, with a pre-money valuation estimated at around $2B. Major investors include Jeff Bezos (Explore Investments LLC) committing $100M, Microsoft investing $95M, and Nvidia and an Amazon.com Inc.-affiliated fund each providing $50M. 
More: - Figure AI's flagship project, Figure 01, is a humanoid robot designed to replicate human appearance and movement. The company aims to deploy these robots for tasks considered perilous or unsuitable for humans, addressing labor shortages and enhancing efficiency in various industries.
- The investment signifies a broader trend in the AI industry, where companies are exploring innovative applications for artificial intelligence. Humanoid robots, in particular, are viewed as a critical frontier, enabling the integration of advanced technology into real-world scenarios.
- The $675M funding round exceeds the initial target of $500M, showcasing strong investor confidence in Figure AI's vision and capabilities. The involvement of prominent names in the tech sector likely played a role in attracting additional funding.
- The AI Robotics race is just heating up with the main contenders, including OpenAI-backed Norwegian startup 1X Technologies, Vancouver-based Sanctuary AI, and Tesla, who is working on Optimus, a humanoid robot.
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| 3 | | Japan's Nikkei 225 achieved a historic high of 39,029, surpassing its previous record of 38,915.87 set in 1989. Robust corporate earnings, supportive investor-friendly measures, and foreign investors' interest staged this impressive rally in Japanese equities. More: - The Nikkei 225 and the broader Topix have been a standout performer in the Asia Pacific region, recording over 10% gains in 2024, following a remarkable surge of more than 25% in 2023, marking their best annual performances in at least a decade.
- Solid third-quarter corporate earnings from Japanese companies have played a pivotal role in driving the Nikkei's rally. Bank of America equity strategists upgraded their 2024 year-end forecasts for the Nikkei 225 to 41,000 from 38,500, reflecting confidence in the Japanese market.
- Foreign investors have poured funds into Japanese equities, with global funds favoring the market. Warren Buffett's bullish stance on Japan, along with the government's commitment to corporate governance reforms aimed at enhancing shareholder returns, have contributed to increased foreign investments.
- The weakening yen, down about 6% against the dollar in 2024, has supported the export-oriented Japanese economy. The central bank's negative rates regime, expectations of a shift in April, and concerns over high inflation rates affecting domestic consumption have influenced market dynamics.
- Despite the significant rally, many Japanese stocks remain below book value, providing potential upside if managed effectively. In contrast, the current S&P 500 average price-to-book is 4.73.
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| 4 | | Palo Alto Networks announced Q2 FY Non-GAAP EPS of $1.46, surpassing estimates by $0.16, with revenue of $1.98B, beating original expectations by $10M. However, the stock plummeted 23% as the company lowered its full-year billings and revenue guidance, prompting multiple analysts to downgrade the cybersecurity firm. More: - Earnings per share (EPS) of $1.46 exceeded estimates by $0.16, and revenue of $1.98B surpassed expectations by $10M. The remaining performance obligation grew by 22% year over year (YoY) to $10.8B, reflecting sustained demand. The non-GAAP operating margin expanded by 580 basis points YoY to 29%.
- The management provided a yearly outlook, expecting total billings from $10.10B to $10.20B, representing YoY growth of 10% to 11%. Total revenue is forecasted to be between $7.95B and $8.00B, with a YoY growth of 15% to 16%.
- The market expected billings between $10.7B and $10.8B, and the stock plummeted, closing the week 23% lower.
- Several Wall Street firms downgraded Palo Alto Networks due to concerns about the impact of the company's new platform strategy, anticipating potential business challenges over the next year or more.
- Analysts highlighted concerns about Palo Alto Networks' shift towards platformization, consolidating point products onto three platforms. This move is expected to negatively impact growth rates and multiples in the short to medium term. Meanwhile, analysts who express bullish views see the strategy shift as a positive long-term move with short-term pain.
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| 5 | | Rio Tinto received the board's approval for the $20B Simandou iron ore project in Guinea, marking the world's largest mining endeavor, with high-grade iron ore production expected to commence by 2025. The complex project involves collaboration with various partners, including the Guinean government and Chinese entities. Why It Matters: The Simandou iron ore project is poised to become a significant contributor, providing approximately 5% of the global seaborne iron ore supply upon completion. This will have substantial implications for the iron ore market and related industries. The production of high-grade iron ore from Simandou supports environmentally friendly steelmaking practices, as high-grade iron allows for using hydrogen and carbon monoxide instead of traditional coal-based fuel like coke, aligning with global efforts to reduce carbon footprint in the steel industry which creates about 8% of global emissions. What the numbers say: The Simandou project stretches over the surface of more than 60 miles, containing the world's largest untapped reserve of high-grade iron ore, estimated at over 2.8 billion tons. The mine's life is expected to be 26 years, with an average grade of 65.3% iron and low impurities. The project will create about 45,000 jobs in the area. Zoom out: - The Simandou project has been in the making since 1997. Its' complexity, arising from intricate ownership structures, prolonged negotiations, legal disputes, and evolving political landscapes, underscores the challenges in developing large-scale mining initiatives.
- Despite commodity market turbulence, Rio Tinto's commitment to major projects like Simandou reflects confidence in the long-term demand for key commodities, including iron ore, copper, and aluminum.
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| 6 | | The Biden administration plans to invest over $20B in the domestic manufacturing of cargo cranes to replace China-made cranes at U.S. ports, citing concerns about national security risks associated with the prevalent use of Chinese-built cranes with advanced software. As part of the initiative, the U.S. Coast Guard will mandate certain digital-security requirements for deployed foreign-built cranes at strategic seaports, and President Biden has issued an executive order establishing baseline cybersecurity standards for computer networks operating U.S. ports. More: - The administration expressed concern that China-made cranes could be encrypted in a criminal attack, rented, or operated by an adversary, leading to real economic and military consequences. Manipulation of crane software could disrupt crane operations or facilitate espionage.
- Chinese-made cranes, particularly those manufactured by ZPMC, contain sophisticated sensors capable of tracking containers' origin and destination. The fear is that these cranes, if compromised, could be exploited in cyberattacks, impacting the movement of goods in the U.S. economy and potentially affecting military logistics.
- The U.S. military has been wary of Chinese-made cranes for years, with efforts to avoid ports equipped with these cranes due to concerns about surveillance capabilities. The Chinese government's ability to track U.S. military shipments adds to the security apprehensions.
- The initiative aims to reduce dependence on China for critical infrastructure components, aligning with broader efforts to enhance domestic manufacturing capabilities and supply chain resilience. The investment in a U.S. subsidiary of Mitsui for crane production reflects a shift toward domestic sourcing.
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 | Freelance Writer | | Stjepan Kalinic is an analyst and writer with a background in institutional investment research. He's passionate about reading, playing music, lifting weights, and practicing martial sports. He values interesting books above everything else, and you can send recommendations through LinkedIn. | | This newsletter was edited by Megan LaBruna | |
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