Markets
markets
Claire Yubin Oh

Energy stocks follow oil lower as Strait of Hormuz set to reopen

Oil names including Occidental Petroleum, Marathon Petroleum, CF Industries, Devon Energy, Phillips 66, ConocoPhillips, Exxon, and Chevron are all ticking lower on Monday, following oil itself, after the US and Iran agreed to strike a deal to end a conflict that has pushed energy stocks up in recent months.

Alongside the countries both declaring the end of their military operations, US President Donald Trump said on Sunday that the Strait of Hormuz would be opened when the agreement is signed in Switzerland on Friday, writing on Truth Social, “Ships of the World, start your engines. Let the oil flow!”

Let the oil flow?

Vessel traffic through the Strait of Hormuz, however, remains largely unchanged since the announcement of the peace deal on Sunday, per crossing data tracked by AIS. With the exception of some smaller vessels and prearranged crossings, shipowners are likely waiting for the planned signing on Friday and further confirmation from the Iranian side before attempting transits.

Analysts at the Baltic and International Maritime Council said that they “still consider it very risking for ships to commence transits” through Hormuz, adding that they “expect it will take several weeks for all [trapped] ships to leave” in a conversation with CNN.

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David Crowther & Luke Kawa

It's still the "you gotta spend money to make money" stock market

A major theme of this year is that American companies are once again becoming major sellers of stocks.

For years, companies did the exact opposite; buying back trillions of dollars worth of shares, a practice that juiced earnings, and was seen as a safe option for management teams that had run out of good-enough projects to allocate their capital to. Just look at Google, which is wiping out more than two years’ worth of buybacks with an $85 billion offering, while Meta reportedly mulls an equity raise of its own.

Now, the mantra is that investment opportunities in AI — particularly as suppliers to the arms race — are a source of future returns that are also key to sustaining higher growth. In short, capex is king, and buybacks are admitting that you don’t have enough investment opportunities that allow you to benefit from the AI boom. Raise debt, raise equity, raise anything — just make sure you're spending, and the market will reward you; a Goldman Sachs basket of companies with elevated capex relative to peers is besting stocks with the strongest buyback yields by some 30% — the most ever.

This is leading to some major divergences in accrual-based profit measures like net income, and free cash flow (which takes capex into account), for companies like Oracle.

Of course, the rest of the AI complex doesn't care whether the cash spent on the next data center was raised via debt or equity. More funding for the AI buildout is more funding for the AI buildout. Indeed, if we took capex to a bazillion dollars, that spending would still be accretive for aggregate earnings in the first year (assuming all the recipients of the capex binge were public stocks). Yes, eventually the depreciation on those assets starts to be felt and we’d normalize lower, but in the short term it’s a boon to the stock market's bottom line.

This is why Oracle’s chart is actually just a more extreme version of the wider market; free cash flow used to be about 90% of aggregate net income, now it’s hovering around 75%, per estimates compiled by Bloomberg.

markets
Helena Cheng

Fox to acquire Roku in $22 billion deal to create streaming and live content powerhouse

Fox said it struck a deal to buy Roku in a cash-and-stock transaction valued at about $22 billion.

The deal values Roku at $160 a share, a 34% premium to where the stock had closed before reports surfaced Friday that Roku was exploring a sale, sending shares 20% higher on Friday.

On Monday, the stock edged lower to around $140, as investors digested the risk profile and timeline of the deal. The unseasonably elevated cost of funding equity positions amid elevated issuance and growth of leveraged ETFs may also be dampening the appeal of merger arbitrage strategies.

Fox stock dropped 17%, putting it at down roughly 25% so far this year.

The deal, expected to close in the first half of calendar year 2027, will expand Fox’s digital footprint as traditional cable continues to shrink. The merger would give Fox direct access to more than 100 million streaming households globally. Once the transaction closes, existing Fox shareholders will hold a roughly 73% stake in the combined company, with Roku shareholders owning the remaining 27%.

Fox has spent the past several years building out its streaming strategy through Tubi and, more recently, FOX One, its direct-to-consumer sports and news product. Just last week, Roku added FOX One as a premium subscription inside its Roku Channel, expanding distribution ahead of the FIFA World Cup.

Roku, meanwhile, has been trying to prove it can turn its scale into consistent profits. Roku generated $613 million in ad revenue in its latest quarter, up 27% year over year.

Roku had surged during the pandemic as investors piled into streaming winners and Roku was one of the beneficiaries of the stay-at-home boom. But it has given back much of those gains.

Fox CEO Lachlan Murdoch called the acquisition “a defining moment” that combines Fox’s strength in live content with Roku’s streaming scale and platform reach. “This combination will transform the scope of our company into high-growth verticals and yield a step change in our overall growth profile,” he said in the announcement.

Roku CEO Anthony Wood said the deal would help accelerate Roku’s long-term growth while maintaining its position as an open platform.

markets
Luke Kawa

Nvidia to reportedly raise at least $20 billion in first bond sale since 2021

While other tech companies are turning toward equity markets to finance their latest AI investment plans, Nvidia is reportedly about to tap the corporate bond market for the first time since 2021.

Per Bloomberg, the world’s most valuable company plans to raise at least $20 billion by selling bonds with maturities ranging from 2 to 30 years. Initial chatter has the 30-year maturities priced at a spread of roughly 90 basis points to US Treasurys.

When Nvidia last issued 30-year debt in 2021, markets were still reeling from Covid-induced lockdowns and the coupon was about 220 basis points above the rate on US 30-year government debt.

Does Nvidia need the money? Unequivocally, no. But when you can raise money through the mid-2050s at less than a percentage point above US Treasurys, I suppose you don’t say no. It’s better (and cheaper) to raise money when you don’t have to compared to when you’re in dire straits.

And of course, while there’s been some tiptoeing into stock issuance, the credit market has still been the dominant means by which megacap tech companies look to find extra cash to facilitate their AI outlays. Google, in particular, has gone on a United Nations issuance spree this year.

US-POLITICS-DIPLOMACY

Stocks soar as US and Iran reach deal to open Strait of Hormuz, end the war

The details of the framework for peace are not yet available.

J. Edward Moreno6h
markets
Helena Cheng

AMD shares climb on double Citi upgrade to “buy” with $575 price target

AMD’s shares are rising in premarket trading following a double upgrade from Citi. Citi analyst Atif Malik raised AMD’s investment rating to “buy” from “neutral” and boosted the bank’s 12-month price target to $575 from $460 per share, per Barron’s.

Malik argued that the broader market currently misprices AMD by looking at it primarily as a CPU producer, underestimating its massive GPU potential. Citi says that AMD is uniquely “poised to win the lion’s share” of Meta’s customized graphics chip business. Meta is leaning into AMD’s custom MI450 chips, which deliver a lower total cost of ownership compared to buying traditional off-the-shelf merchant hardware, according to Investing.com.

Citi highlighted a massive multiyear deal between the two tech giants involving a 160 million-share common stock warrant. As the first phase ramps up through 2027, Citi expects each gigawatt of data center infrastructure to translate into roughly $15 billion in revenue. Consequently, Citi hiked its 2027 AMD AI sales forecast to $33 billion (up 137% year over year) and projects GPU sales to reach $50.8 billion by 2028.

CEO Lisa Su recently delivered an optimistic demand forecast, predicting that the global market for CPUs will grow by more than 35% annually over the next five years. The chipmaker delivered a robust Q1 earnings report back in May that beat Wall Street expectations across key data center segments.

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