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You can always rely on Michael Saylor and the folks at Strategy to blaze new trails in corporate finance. Take Strategy’s announcement today that it had raised $1.44 billion by selling shares to—get this—establish a “USD reserve” to pay the $689 million it owes annually in dividends on its stock and interest on its debt. Usually companies try to pay both out of cash they generate from their businesses. But Strategy’s only functioning business—a small enterprise software operation—isn’t a reliable moneymaker. The company’s reported profit is mostly made up of unrealized gains and losses on bitcoin—in other words, it’s not real.
To boost its cash reserves, Strategy could have sold some of its 650,000 bitcoin, currently worth $56 billion. But seeing as bitcoin prices are in freefall right now, any move to unload some of those holdings could be ugly. Instead, the company is turning to the stock market, as it has done already this year (several times) when it was raising money for bitcoin purchases. Of course, things were different just a few months ago. As my colleague Yueqi Yang wrote recently, Strategy’s stock in May was worth twice the value of its bitcoin, allowing it to buy $200 worth of the crypto asset by issuing $100 worth of shares. That was great while it lasted, but it’s over.
To show just how much the bitcoin slump has changed things for Strategy, the company today updated its “earnings guidance” for the year ending Dec. 31 to say that because of the drop in bitcoin price, it is now forecasting it would either lose as much as $5.5 billion or earn as much as $6.3 billion. (Why not just say, “We have no idea”?) As recently as Oct. 30, Strategy was forecasting a net profit of $24 billion for the year, assuming bitcoin traded at $150,000 at year‘s end. That’s not looking likely as it's now it’s trading around $86,000.
The good news is that Strategy managed to sell the stock and raise the money. Its share price only dipped 3% today, even as bitcoin’s price fell nearly 6%. That’s perhaps because Strategy had flagged its intention to sell stock in this situation over the past year so it wouldn’t come as a surprise to investors. The money provides the company a bit of a cushion: Strategy said today the $1.44 billion will cover nearly two years’ worth of dividends. Still, this reliance on selling stock to fund everything seems like a merry-go-round that can’t keep whirling.
Nvidia’s Synopsys Deal
Nvidia is pumping $2 billion into Synopsys, the companies announced today, but both insist the investment is not designed to fund more purchases of Nvidia chips—unlike other investments Nvidia has lately announced. Instead, the investment is part of a partnership between Nvidia and Synopsys, which does chip design, aimed at speeding up changes in product design and engineering.
But the hot topic of whether Nvidia is financing demand for its AI chips through its investments reared its head at a conference call Monday morning. In answer to a question on what Synopsys would use the money for, CEO Sassine Ghazi said Synopsys was already a customer of Nvidia and had “no intention or commitments to use that $2 billion to purchase Nvidia GPUs.” Nvidia CEO Jensen Huang said, “There’s no purchasing relationship between the investment and anything else.”
He added that the investment was a “demonstration of commitment and appreciation for Synopsys going all in on the Nvidia platform.” How nice.
In Other News
• Apple’s top AI executive, John Giannandrea, is stepping aside and will retire next spring. Former Microsoft and Google AI researcher Amar Subramanya will take over some of his responsibilities.
• Amazon Web Services and Google Cloud on Monday launched a new jointly developed service that enables their customers to instantly establish high-speed connectivity between the two cloud platforms.
• OpenAI is taking an equity stake in Thrive Holdings, a business launched by backer Thrive Capital to start and buy firms that could gain from AI, such as in accounting and other service-oriented industries, the two companies announced Monday.
• Amazon confirmed it was testing a new ultra-fast grocery delivery service. For more, see this story.
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