← Money Rehab with Nicole Lapin
Money Rehab with Nicole Lapin
Wall Street News Roundup: The Government's 15% Cut From Nvidia, Intel's Bad Year and Trouble at Yieldstreet
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If you take only one thing away from today's episode, Money Rehabbers, let it be this. In my not so humble opinion, Public is the best brokerage for investing in bonds, stocks, ETFs, options and even crypto. You can try it out for yourself and see why I love it so much. @Public.com MoneyRehab Public is legit, the only platform I use to buy bonds. Before Public, I used to buy government bonds the hard way. Slow websites, confusing interfaces, website designs straight out of the early 2000s. Just picture where fun goes to die. That was it. And then I found Public about five years ago and I have not looked back. I can now finally buy bonds without wanting to rip my hair out. Public makes it so easy to buy bonds. Whether you're into Treasuries or corporate bonds, you can browse thousands of options right from your phone. But like I said, Public isn't just all about bonds. You can also find stocks and ETFs and they offer a high yield cash account with a 4.1% APY, which is higher than the national average. They even have retirement accounts. You can now open a traditional or Roth IRA or both right on public so your future self covered. And for a limited time you can earn a 1% match on all your IRA deposits, IRA transfers and 401k rollovers. If you want an investing experience that's both smart and simple, head to public.com money rehab one more time. Public.com money rehab this is a paid endorsement for public investing. Full disclosures and conditions can be found in the podcast description Foreign I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some Money Rehab. It is time for a roundup of the biggest stories on Wall street and how they're going to affect you and your wallet. As you know, I have been a financial reporter for 10,000 years now. I started my career when I was 18 on the floor of the Chicago Merc. So I am used to having to go through dense, dense documents. This week Nvidia has me brushing up not on earnings reports, but on the Constitution, specifically Article 1, Section 9, Clause 5. If you need a refresher yourself on that one, it reads, no tax or duty shall be laid on articles exported from any state. Now the TLDR is that this is known as the Export Clause and it's way more straightforward than it sounds. If you have a domestically designed or produced product and you sell it internationally, the United States government cannot tax it. It is so straightforward in fact, that the only legal cases about it have to do with really hyper specific products like maritime insurance premiums. I know, very exciting stuff here. So why the heck is this long settled clause suddenly back in the headlines? And what does it have to do with Nvidia and amd? Both companies manufacture semiconductors, including the highly sophisticated chips that power artificial intelligence. Nvidia. Nvidia, AMD or Advanced Micro Devices is a player that has also seen a serious lift from the AI boom. AMD stock is up 99% over the last five years, which is seriously impressive. Although not quite as impressive as Nvidia, which is up 1300% over the last five years. But again, Nvidia is Nvidia. The chips Nvidia and AMD make power everything from TikTok filters to potential weapons systems. Think of these chips like the electricity of the digital age. In 2022, Biden administration banned American companies from exporting a specific type of semiconductor called advanced Graphic processing units or GPUs to China and Russia without specific authorization. The rationale behind this was letting those companies supercharge their AI could create massive security risks. Surveillance, weapons systems, you name it. Now there weren't taxes involved, just restrictions. US Firms could only sell watered down versions of their chips that passed regulatory must. Still, that was a gut punch to the bottom line. Nvidia alone had reported $400 million in sales in China the quarter before the rule kicked in. Both Nvidia and AMD went back to the drawing board, designing chips that complied with the law but still had a market in China. Then in April of this year, the Trump administration slammed the brakes and blocked even those sales. Nvidia was left with $5.5 billion worth of chips just gathering dust in storage because of that. Since then, both companies have been lobbying hard for licenses to get back into China. And relief has finally come through a very UN DC way. Instead of legislation, Nvidia and AMD struck a deal. In exchange for licenses, they'll give the US government 15% of revenue from advanced chip sales in China. Analysts estimate that those licenses could be worth around $2 billion. For context here, the US government spends about $18 billion a day. But Washington is very, very hyped on chipping away at the national debt. So every billion helps. Anyway, there is a constitutional wrinkle here. Is this 15% a tax or a duty? If so, it's unconstitutional under the export clause because you can't tax domestic products sold overseas. And I know what you're thinking here, but no. Even if Nvidia makes the chips overseas. US export rules still apply because the technology was designed in America. So if it's not a tax, what is it exactly? A fee? A royalty? A political iou? Normally the courts would hash this out, but Nvidia and AMD aren't about to sue. They finally got their golden ticket back into China and they are not risking it. Still, it raises big questions. If it was a security concern before, why is it suddenly fine once money is involved? And how do you even enforce this? Chip smuggling is already a thriving global business. I am all in, by the way, for introducing ways for the US government to make more money, but I am not sold on this plan. Nvidia represents more than 7% of the entire S&P 500 index, which means that it carries a lot of weight within the US stock market as a whole. It's not just a big deal for the markets though, it's a big deal for our economy. As a share of US GDP, Nvidia's $4 trillion valuation represents roughly 13%. So if China can outpace Nvidia's competitive edge, the stock price will fall and that will be problematic for US investors. So let's keep a close eye on this one. While we're on the subject of chips though, let's talk about my next big story on the street. Intel Poor, Poor Intel. Intel is not doing so great. On one hand, Softbank just announced a $2 billion investment in intel and the stock rose on the news. Yay. But unlike its chip making counterparts, intel has really been struggling to break into the high end AI race. Shares lost 60% of their value last year. Recently, Intel CEO Lip Bhutan said it's quote, too late to catch up in the AI race and he doesn't consider intel to be one of the top 10 semiconductor firms. Ouch. That's your own company, bro. Anyway, as a result, President Trump publicly slammed Tan on Truth Social, calling him highly conflicted and demanding that he resign. Pointing to Tan's heavy investments in China, some tied to military projects, the company panicked and arranged a face to face meeting with the president. Shortly after, we learned that the administration might convert existing grants to intel into $10 billion worth of equity shares, which comes out to about 10% of the company. Grants came from the Chips and Science Act, a big spending bill designed to bring more semiconductor manufacturing back to the US, which passed in 2022 under Biden. This act sprung from the US's concern about relying too heavily on Asia, especially Taiwan and South Korea, for advanced chips in the chips act, the government set aside $39 billion in grants for chip makers. These were not loans and the government did not expect to get paid back. Instead, they were subsidies meant to cover the huge upfront cost of building factories in big players like Intel. TSMC, Samsung, Micron, Nvidia and GlobalFoundries all got a slice. Intel was the single largest recipient though about $10.9 billion total, 7.9 billion for US plants and 3 billion for defense related manufacturing. The Biden administration originally structured this as free money, AKA grants. The Trump administration, through Commerce Secretary Howard Lutnick, is now saying if taxpayers are footing the bill, taxpayers should get something back. Instead of intel just pocketing $10.9 billion as a subsidy, the government may require intel to give Washington stock in the company. That makes the government a shareholder entitled to dividends, gains if the stock price rises and potentially voting rights depending on the share type. Although so far Trump officials are saying that they wouldn't have voting rights. This would impact investors because it almost certainly would dilute existing shareholders. Here's what I mean. If intel has to give Washington $10 billion worth of stock, it would need to create and then hand over the shares to the government unless it buys back shares from the market, which is less likely. It won't mean that investors will get stock taken away from them, but it would mean that their stock would become slightly less valuable. Here's the simplest way to think about this concept. Say you and I start a company together and our company issues just two shares. We each get one and therefore we own 50% of the company, right? If we hire a third co founder and issue a new share for them, you and I Both still have one share, but now we only have 33% of the company because now the total shares outstanding have gone from 2 to 3. This is why adding shares to intel would dilute ownership for existing shareholders. But instead of my made up example where There are only 3 shares, intel has about 4.3 billion shares outstanding outstanding. But even so, when you look at Intel's numbers, that's an expected drop of about 7%. Some investors might like the government backstop, others worry about political ownership creeping into private companies. I will say it's not a good look though when your competitors, AKA Nvidia, are offering the government a slice of their profits because the pie is just so, so large and all you can do is put some ownership of your struggling company on the table. Finally, let's check in with YieldStreet, a company that conceptually was very cool. Yield Street's big pitch was democratizing access to asset classes once reserved for the ultra rich, like real estate Art Private equity Sounds like a great idea, right? Unfortunately, the execution has not been ideal. According to CNBC, investors put over $370 million into 30 different real estate deals. Of those, four have already gone bust, and 2023 more are teetering on a watch list. Over the past year alone, investors recognize $78 million in defaults. Yield street has also shut down its real estate investment trust, and returns in that sector have cratered from 9.4% annually in 2023 to just 2% today. The company blames interest rates and adverse market reactions, and there is some truth to that. Also, I have to call it like it is. One big reason these asset classes are associated with rich people is because rich people can afford to lose money. These asset classes are risky. Four out of 30 real estate deals going belly up is not unheard of, and that's what Yield street should have made abundantly clear. But they haven't. The company has also not been upfront about the losses. They've sent out fewer updates to current investors while simultaneously hitting them up for new funding rounds. Some documents even downplayed how bad things really were. And that's the heartbreak here. Alternative investing is always risky, but when trust erodes, it stings twice as much. For now, Yield street saga is a reminder that exotic investments can come with exotic risks. And when it comes to your money, transparency isn't optional. It's everything. For today's tip, you can take straight to the bank. If you're exploring alternative investments like private equity, real estate syndications or art funds, ask for the fund's capital call schedule before you invest. This tells you when and how often the fund might ask for additional money. Yield Street's investors got burned not just by losses, but by surprise, capital calls and radio silence. If a firm can't or won't share a timeline or contingency plan for additional contributions, walk away. The ultra wealthy protect their money by asking better questions on the front end. And you should too. Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions money rehab@moneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me. And follow us on Instagram, MoneyNews and TikTokoneyNewsNetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.