Namaste, Sat Sri Akaal, and Salaam. 🫡

Happy Monday folks. Hope you had a great weekend and caught up on all your missed sleep.

Today we’re diving into -
- Nvidia’s push to be ‘the next AWS,’
- big brands’ shock in China,
- and JP Morgan’s dreams to play ball with the big boys.

Our read time today is 3 minutes and 44 seconds - faster than Carlos Sainz flew by the pit wall. 🏎️

Let's dive in. 👇

Market Vibe Check

Gucci gets a shock in China along with other ‘Big Luxury.’ 😅

TLDR -
- A slowdown in Chinese demand has ‘Big Luxury’ thinking twice about their dependence on the East Asian market.
- Kering (owner of Gucci, YSL, Balenci, Bottega, etc) saw it’s shares drop the most in 30 years after warning investors that their China business is seeing some hard times.
- Even Swiss watchmakers have found China’s market to be retracing.

The luxury industry has been plagued with fears over a slowdown in Chinese demand for a long while now, but this problem left a $9 billion question mark in Gucci’s market cap last week.

French group Kering (which owns YSL, Gucci, and Balenciaga) saw it’s shares immediately slump almost 20% after warning investors that they’ve seen significant lack of demand from China and East Asia. This has been the steepest drop in stock price they’ve seen in the last 30 years, and it’s with very good reason.

While the rest of the world grapples with one crisis or the other, China has always been a relatively ‘stable’ and dependable source of revenue for luxury labels.

But Chinese luxury shoppers have grown more selective about where to spend their cash of late. Rising unemployment and a property downturn have hurt consumer confidence, while deflationary pressures are fueling concern about growth.

All this makes people ‘feel poorer,’ which means they’re more likely to hold off buying that bag or thing twice before ordering a new pair of shoes.

This slowdown is spreading to other parts of the industry, and hurting Swiss watchmakers too - with exports of top brands falling over 25% last year and resale prices of the ‘top brands’ (Rolex, Audemars, Patek) all cratering by over 50%.

Most people in the business of luxury are quickly realising that the days of Chinese outperformance might be soon coming to an end, while other South-East Asian or even Middle Eastern markets may have similar economics to the China in the 2000s.

JP Morgan makes a play for the sports M&A market. ⚽

TLDR -
- JP Morgan just set up a new team entirely dedicated to the sports deals that come across their desk, following in Goldman Sachs’ footsteps.
- This is an interesting shift away from the standard practice of nabbing a dozen bankers from the TMT (technology, media, telecom) desk 🙈
- Over $25bn of M&A activity went down last year in the sports industry - not a massive number, but enough to get the big boys interested.

We read the news about our favorite football teams exchanging hands for millions of dollars, but we never really stop and wonder: who really makes the magic happen?

This so called ‘magic’ comes in the form of over $25bn of M&A activity in the last year alone from sports teams, and over $400bn in total value created by franchises this decade.

And investment banks are amazing at following the money, which is why JP Morgan just followed in Goldman’s footsteps and set up their own dedicated sports investment banking team.

This is a decent signal to the the wider banking industry that sports deals are no longer business as usual, and you can’t just pull a dozen people aside from the TMT arm to work on a few deals. The sports value chain is a multibillion dollar industry covering hospitality, tourism, manufacturing, gaming, and so much more.

Bankers who have ignored this growing market have left quite a few millions on the table - and that’s why having a dedicated team makes sense since there are very few who understand the nuances of what it takes to make a sports deal successful from the boardroom.

Very interesting stuff.

Nvidia gears up to be ‘the next AWS.’ ⚡

TLDR -
- Nvidia’s most exciting business turned out to be an accident - just like Amazon’s most exciting business, AWS.
- They’re spending a good chunk of time and resources on blitz-scaling the same, after last year’s 3x in revenue from $7.1b to $22.1b.
- Nvidia controls over 95% of the chip market depending on the day, and this grip makes it so that they can cross-sell all sorts of related things and bleed the competition even further.

Most people think that Amazon makes it’s real profits via their delivery business.

But last year, despite only making up 16% of their revenue, a business segment called AWS (Amazon Web Services for the uninitiated) was responsible for almost 75% of their profitability.

And the most interesting part? AWS was founded as a complete accident - by Amazon discovering that they could sell their internal computing infrastructure to others.

Nvidia is the most talked-about company on the world right now, and it’s market-leading AI chips were also a complete accident - because their GPUs were initially created to handle heavy-duty gaming, but they also turned out to handle AI-related processing workloads better than any other chip on the market.

This ‘happy accident’ coupled with an AI boom has helped Nvidia become the 3rd most valuable company in the world and grow revenue by 3X in a single year, from $7.1 billion in Q1 2024 to $22.1 billion Q4 2024.

Revenue growth this good is virtually unheard of at scale this big, so it makes sense for Nvidia and Jensen Huang to be doubling down wherever they possibly can to go all-in on AI.

While of Nvidia’s recent top-line growth is being generated by their data-center business, this is still incredibly powerful, because they go above and beyond just selling chips which can handle complex AI-related tasks. They’ll also sell you systems, software, services and even time on one of their own supercomputers if you need it.

Virtually no one can compete with Nvidia’s ‘happy accident,’ and it looks like it’s going to stay that way for a while, with their commanding 95-97% market share in the chip market.

In other news… ☕

USA and Japan link up for largest security pact in 60+ years (FT)

Goldman enjoys uptick in institutional crypto demand (BBG)

Network International <> Brookfield deal gets okayed by UAE’s central bank at $2.8bn (GB)

Liquid Death soars past a quarter million in sales (TC)

Stellantis recalls 300k dodges over airbag issues (NYT)

And that’s the tea the chai for today.

Thanks for reading, and we hope you enjoyed it.

Lots of ❤️,

Team CC