The White House has approved this article. Oh, wait. That’s just my slow-learning chatbot co-writer, Eric, getting nervous. Silly boy. He’s still being trained and doesn’t understand how the world works yet. Of course, as Disney and Jimmy Kimmel have just discovered, if you want to get a deal done in the USA these days you do need the approval of the Dear (or Expensive) Leader. Beijing watchers will know that a centrally controlled economy dictates whether M&A deals get done, or not. For Disney, it needs regulatory approval for a deal acquiring 10% of ESPN in exchange for NFL sports broadcasting rights. For Nextra who cancelled Jimmy early, it is awaiting FCC approval for its $6.2 billion merger with Tegna. This all makes worrying sense, but on a positive note I’m sensing an exciting pick-up in the wider world of M&A outside the truth-strangled US media. Let’s take a look at a few deal developments and note how they tick more than a few thematic boxes.
A is for AI and we just can’t avoid it. The good news is that the AI ‘space race’ is spilling over into the wider tech world and is not just a ‘Magnificent 7’ phenomenon. Last week we touched on “forgotten” Oracle flagging a $450 billion contract backlog for its AI cloud business. This week it’s struggling chip manufacturer, Intel, receiving the AI love. Fresh from accepting an “invite” from the US government (not China) to take a 10% ownership stake, Intel has just received a $5 billion investment from chip superstar Nvidia in exchange for approximately 4% of the company. Intel’s share pricy duly rocketed 22% in a matter of hours for its best day since… 1987. Back in 2011, Marc Andreessen wrote “software is eating the world”. More recently, we have flagged a significant shift in technology – hardware is hot. AI has focused minds on chips and cloud infrastructure with the most valuable company in the world now a hardware company (ahead of software beast Microsoft). In fact, 5 of the 10 most valuable companies on the planet are technology hardware players. Interestingly, human beings seem to be benefitting from this shift too. Again, Nvidia is splashing the cash.
We have previously written about the acqui-hire trend; the strategic acquisition of scarce knowledge/skills by buying out early stage start-ups. Enfabrica, its CEO and a handful of its employees have just had $900m waved in front of them to join Jensen Huang and Nvidia. The Enfabrica team’s key IP is the ability to connect more than 100,000 GPUs(AI chips) together. Oh to be an AI guru, as Meta, Google and Amazon hunt the globe for unique talents and knowledge. The attraction of hiring individuals (not acquiring start-ups) for the acquiror is the avoidance of regulatory scrutiny. The biggest deal of this genre so far was Meta’s $14.3 billion purchase of a 49% stake (dodging control/regulatory process) in Scale AI, its founder Alexandr Wang and his colleagues. Of course, all this talent and hardware needs electricity to power research, manufacturing and cloud hosting.
So, it was interesting to see private equity giant, Blackstone, acquire Pennsylvania’s Hill Top natural gas power plant for close to $1 billion. This follows Blackstone’s July announcement that it would invest $25 billion in Pennsylvania to build out its energy and digital infrastructure for the AI revolution. Yep, $25 billion. Meanwhile, Elon Musk’s xAI vehicle has purchased an entire power plant overseas and is shipping it to Memphis where xAI plans to build a data centre hosting 1 million GPUs. Blackstone and other private equity players are clearly taking a view that electricity grid infrastructure is critical to any digital/AI ambitions. Blackstone has been particularly busy with an August announcement of the $11.5 billion purchase of New Mexico’s largest utility, TXNM Energy. So, this focus on electricity infrastructure assets raises a further question, possibly opportunity. We know electric power is critical to the AI revolution but there’s another critical component to the digital world – basic materials. The investment community is correctly focusing on the physical assets of the manufacturing and power generation sectors but the most basic manifestation of infrastructure assets is raw materials. The Chinese have bullied the Expensive Leader on tariffs thanks to control of rare earths supplies but what about other critical metals? Let’s see.
Silver and gold prices have both recently hit new highs with precious metals funds (ETFs) posting 47% returns year-to-date. But keep your eyes on the global electrification prize. Copper is the critical metal for electricity conduction in transmission grids, renewable power projects and electric vehicles (EVs). So, check out the biggest mining deal in ages. Anglo American is planning to merge with Canadian copper play, Teck Resources, in a $70 billion deal. Given EVs use up to 4 times more copper than traditional cars and wind farms consume 10 times more copper than gas-fired plants, it’s not a surprise to see this deal happen. However, what is surprising is that the GLOBAL publicly quoted mining sector is valued at just over $1.4 trillion. That doesn’t even cover the increase in value of just one tech company, Nvidia, in the past… 6 months! The most valuable US mining company, Southern Copper, is worth $87 billion. For context, note Larry Ellison’s personal wealth increased by $100 billion in just one epic trading session for Oracle on September 9th. Not for the first time in recent giddy weeks, it feels like something doesn’t quite add up. For illustration, the top 6 US tech companies are now valued at a combined $20 trillion, more than the GDP of China. And yet, each of these 6 companies is utterly dependent on rare earths, basic metals etc. to build semiconductor chips or their precious cloud-hosting data centres. I reference China deliberately.
Not only did China take the long view on the critical role of rare earths in the modern digital economy, they also ‘got’ electricity. In 2010 they finally caught up with the US in terms of electricity generation. But….. today the Chinese electricity generation capacity stands at 2.5x the USA. We read a lot about tech ‘sovereignty’ these days but critical mineral ‘sovereignty’ could be the next frontier of the AI race. Already, the US Department of Defense has taken a 15% ($400m) stake in rare earths mining company, MP Materials. Surely, private equity and its mounting pile of investment ‘dry powder’ sitting idle will start to look at the mining sector? We shall see, but it must be encouraged by the US Department of Defense taking time out of bravely bombing Venezuelan fishing boats to secure mining resources. Whoops, Eric is getting nervous again…. Best I stop now before I’m Kimmeled, and best you follow those deals.
