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How the market’s biggest companies, from Apple to Tesla and Microsoft, invest their cash

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2 months ago

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Silicon Valley Bank wasn’t the only U.S. company with a lot of cash to put to work, but corporate America’s bulging balance sheets aren’t likely to cause any of the same kinds of problems. The cash balances of big companies will, though, be in focus again as another earnings season begins.

U.S. companies are sitting on at least $2 trillion of cash, with a quarter of it concentrated in a few top technology companies, according to Moody’s Investor Service. During the depths of the pandemic, a new phenomenon was witnessed in the equities market with investors rushing into names including Apple as if it offered the stock market equivalent of a bond. In the just completed first quarter, even amid all of the volatility that accompanied the banking crisis, Apple posted a 27% return.

It’s not just a tech phenomenon. Other big holders of cash are carmakers like Ford and Tesla, and health-care companies like Pfizer.

For most major companies, the first major point to make it that cash management, for good or ill, has only limited effect on their operations. Taking the bank example, depositors may run if they think an institution is in trouble, as we just saw. Few will likely decline to buy an iPhone, for example, if Apple one day loses money on bonds. There’s no such thing in industrial companies as a run on the bank: If the value of bonds that Tesla owns drops, for example, it won’t be forced to repay customers who have owned a Model X for years, the way banks have had to pay off depositors who want out.

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The top five cash holders in Moody’s 2022 survey were Apple, Meta, Amazon, Microsoft and Alphabet.

“You add up the top 10 to 12 tech players, and it’s a trillion dollars in cash,” said Wedbush analyst Dan Ives. “But it’s so well managed that you have 2% to 3%, max, in unrealized [losses in value].”

Where to look for limited loss info on income statements

Companies don’t disclose many details about their uses of cash, but what they do disclose is fairly easy to find in Securities and Exchange Commission filings. Look for the line on the income statement that discloses “other income,” usually between operating profit or loss and disclosure of the company’s tax bill. Usually, there is a footnote explaining the highlights. But readers seeking a detailed explanation of the portfolio at these companies may leave disappointed.

“The disclosure is really poor for the auto companies regarding the nature of their cash holdings, so there’s not much to go on,” CFRA Research autos analyst Garrett Nelson said. “Companies often keep money in money market funds or similar highly liquid accounts which should generate more interest income as rates rise, but the amount probably won’t be a material contributor to overall earnings for most companies, even those with large cash balances like Tesla or Ford.”

Given the yields on offer, everyone, not just big companies, has been piling into money market funds based on recent data on outflows from bank deposits.

The 2022 results among big companies for managing their cash and investments were all over the mark, for a variety of reasons. Take Amazon’s $16.8 billion 2022 non-cash loss, not related to any bad bond bets but a big investment stake in electric truck maker Rivian.

Ford had a tough 2022 on the “other income” line of its income statement, losing more than $5 billion, according to the company’s annual 10-K filing. Ford, which did not respond to a request for comment, reported a $7.4 billion write down on its own Rivian stake.

But rising interest rates didn’t seem to hurt giant chipmaker Intel, which reported that it made a profit of $1.17 billion on “interest and other” investment income. It also reported a $427 million gain on equity investments — reflecting the successful spinoff of Mobileye. Intel reported $28.3 billion of cash and investments as of Dec. 31.

For some corporations, the big recent moves have been shoring up where the cash on deposit is being held. The latest CNBC CFO Council quarterly survey showed that even as the majority of companies didn’t face a threat from the regional banking crisis, 23% of CFOs surveyed said they had moved some money out of regional banks and into large multinationals in the last month. Still, most (73%) said they are “not at all concerned” about the safety of company deposits.

Big Tech cash and investments

At Amazon, which declined comment but referred CNBC to the correct portion of its 10-K filing, the largest part of its $70 billion cash and securities pile is tied up in money market funds that pay an average interest rate of 4.2%. Nearly $28 billion was sitting at year-end in one of the simplest investment tools on the market, with another $17.5 million invested in corporate bonds. Amazon’s filing shows it owned $7.2 billion in stocks and warrants of other companies, with Rivian securities remaining the largest chunk of Amazon’s $5 billion invested in other public companies.

A few miles away from Amazon in suburban Seattle, Microsoft said its “other income” line was basically break even during the second half of 2022 – the first half of the company’s fiscal year. The world’s largest software company said it lost $6 million in “other income” during the period. The company said its $700 million in interest income nearly matched its $499 million in interest paid and its $184 million in net investment losses, mostly from writing down the value of derivatives. The company had $99.5 billion in cash at Dec. 31.

Apple, long the king of cash-rich U.S. companies, lost $393 million in other income during the December quarter, the first of its fiscal year. The company didn’t recognize investment losses on its $165 billion pile of cash and marketable securities, but said it paid $1 billion in interest and collected $868 million.

Accounting rules require that bond holdings be written down to market value if the company that owns the bonds plans to sell them, according to accounting giant Deloitte. If a company like Amazon or Apple wants to keep bonds it owns, it only needs to write them down to current value if it is likely to be forced to sell the bond before it matures — as was the case for SVB — or if the issuer is likely to fail to repay the bond.

Apple is actually sitting on nearly $13 billion in unrealized losses, mostly on corporate bonds and mortgage securities, according to its most recent filing. But as long as it plans to hold the bonds to maturity, and the bond issuers are solvent enough to repay the debt, Apple and other holders don’t need to charge those losses against their reported earnings, said CFRA Research analyst Angelo Zino.

“I don’t want to say it’s not a big deal,” Zino said. “But this is a company that generates $100 billion a year in free cash flow.”

 

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Al Gore-led fund leads $95-million investment in Toronto's BenchSci, which uses AI to hasten drug discovery – The Globe and Mail

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3 hours ago

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May 28, 2023

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Liran Belanzon, CEO of AI company BenchSci, at the company’s new Toronto offices on July 27, 2021.Fred Lum/The Globe and Mail

Al Gore’s investment firm has led a $95-million financing of a Toronto company that uses artificial intelligence to help pharma giants cut time and costs from the drug discovery process.

Generation Investment Management, chaired by the former U.S. vice-president, led the growth equity financing of BenchSci Analytics Inc., with backing from past investors Inovia Capital and Golden Ventures of Canada, and U.S.-based TCV and F-Prime Capital Partners, affiliated with Fidelity’s founding Johnson family. It’s Generation’s third deal in Canada, after 2021 investments in AlayaCare Inc. and Benevity Inc.

Terms were not disclosed but Golden managing partner Matt Golden said it was a “clean deal” free of complex structured terms that financiers have increasingly demanded from startups to guarantee them a larger share of proceeds when they sell.

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Multiple investors bid to lead the deal and BenchSci chief executive Liran Belenzon said it was “not a down round,” meaning the company at least maintained its valuation from when it raised US$50-million last year. The lack of structure or devaluation puts BenchSci in rare company amid a shakeout across the tech sector as companies run out of cash or face onerous funding offers from investors.

Mr. Belenzon said “we weren’t in a position where we needed to raise money, but that’s when I want to raise. We have lots of traction and I want to make sure we have a good war chest to continue meeting demands.” He added he expects venture capital investing levels “will only get worse” despite steep declines already in the past year.

Tom Czitron: How artificial intelligence will change the investing landscape

BenchSci deploys artificial intelligence to rapidly peruse millions of scientific publications. Tens of thousands of researchers use its online subscription software tool to quickly determine which antibodies (proteins the body develops to fight invasive substances) and reagents (substances that cause chemical reactions) would be best to use in early experiments on new medications.

BenchSci’s product is used by 16 of the world’s 20 largest pharmaceutical companies, which shave months and substantial costs off the search for new drugs. Novartis in its 2021 annual report said it saved US$14-million from 2018 to 2021, as scientists using BenchSci to select the best antibodies and reagents cut down on expensive and unproductive experiments and accelerated projects by months.

Anthony Woolf, growth equity partner with Generation, a social-impact sustainability-focused investor, said his firm heard “what I’d describe as wild customer love” for BenchSci during its due diligence research. “The largest biopharmaceutical companies are spending billions of dollars a year on their preclinical research and development teams, so any degree of efficiency is meaningful to them.”

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BenchSci is working towards more diversity, equity, and inclusion initiatives in the company.Fred Lum/The Globe and Mail

He added there are relatively few software tools available for early drug researchers, and that BenchSci is a welcome response to “a massive innovation crisis” in preclinical research and development that has seen the cost of drug discovery skyrocket.

BenchSci was founded in 2015 by Tom Leung, David Chen, Elvis Wianda and Mr. Belenzon after they met through the Creative Destruction Lab at University of Toronto. It has grown rapidly since the start of the pandemic, more than doubling revenue over the past 18 months and expanding its team to more than 400 people from 100 in 2020. Mr. Belenzon forecast his company would double revenue again this year but didn’t disclose absolute figures.

Asked if he was concerned generative AI companies such as OpenAI could threaten BenchSci, Mr. Belezon replied: “I think every technology can be a threat if you don’t do anything about it. We will remain agile, adopt new technologies to help us solve the problem faster and never stop as an organization.”

Mr. Woolf at Generation added: “Our conclusion is that large language models” used in generative AI “are going to benefit BenchSci over time as long as they can incorporate it.”

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Singapore's Temasek cuts compensation for those responsible for FTX investment – Yahoo Canada Finance

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4 hours ago

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May 28, 2023

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By Urvi Manoj Dugar and Yantoultra Ngui

(Reuters) -Singapore state investor Temasek Holdings said on Monday it had cut compensation for the team and senior management that recommended its investment in the now-bankrupt FTX cryptocurrency exchange.

“Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced,” Temasek Chairman Lim Boon Heng said in a statement posted on Temasek’s website on Monday.

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It did not detail the amount of compensation cut.

The move comes around six months after Temasek initiated an internal review of its investment in FTX, which resulted in a writedown of $275 million.

Temasek had said its cost of investment in FTX was 0.09% of its net portfolio value of S$403 billion ($304 billion) as of March 31, 2022, and that it currently had no direct exposure in cryptocurrencies.

Temasek also said last year it had conducted “extensive due diligence” on FTX, with its audited financial statement then “showed it to be profitable”.

FTX’s other backers such as SoftBank Group Corp’s Vision Fund and Sequoia Capital had also marked down their investment to zero after FTX, founded by Sam Bankman Fried, filed for bankruptcy protection in the United States last year.

“With FTX, as alleged by prosecutors and as admitted by key executives at FTX and its affiliates, there was fraudulent conduct intentionally hidden from investors, including Temasek,” Lim said in the statement on Monday. “Nevertheless, we are disappointed with the outcome of our investment, and the negative impact on our reputation.”

($1 = 1.3245 Singapore dollars)

(Reporting by Urvi Dugar in Bengaluru and Yantoultra Ngui in Singapore; Editing by Himani Sarkar and Lincoln Feast.)

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Solar power due to overtake oil production investment for first time, IEA says

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1 day ago

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May 27, 2023

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Photovoltaic panels at a solar farm near Thaxted, eastern England, on May 16.DANIEL LEAL/AFP/Getty Images

Investment in clean energy will extend its lead over spending on fossil fuels in 2023, the International Energy Agency said on Thursday, with solar projects expected to outpace outlays on oil production for the first time.

Annual investment in renewable energy is up by nearly a quarter since 2021 compared to a 15-per-cent rise for fossil fuels, the Paris-based energy watchdog said in its World Energy Investment report.

Around 90 per cent of that clean energy spending comes from advanced economies and China, however, highlighting the global divide between rich and poor countries as fossil fuel investment is still double the levels needed to reach net-zero emissions by midcentury.

“Clean energy is moving fast – faster than many people realize,” said IEA Executive Director Fatih Birol.

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“For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy. Five years ago, this ratio was one-to-one.”

Around US$2.8-trillion is set to be invested in energy worldwide in 2023, of which more than US$1.7-trillion is expected to go to renewables, nuclear power, electric vehicles and efficiency improvements.

The rest, or around US$1-trillion, will go to oil, gas and coal, demand for the last of which will reach and all-time high or six times the level needed in 2030 to reach net zero by 2050.

Current fossil-fuel spending is significantly higher than what it should be to reach the goal of net zero by midcentury, the agency said.

In 2023, solar-power spending is due to hit more than US$1-billion a day or around US$380-billion on a yearly basis.

“This crowns solar as a true energy superpower. It is emerging as the biggest tool we have for rapid decarbonization of the entire economy,” energy think tank Ember’s head of data insights, Dave Jones, said in a statement.

“The irony remains that some of the sunniest places in the world have the lowest levels of solar investment.”

Investment in new fossil fuel supply will rise by 6 per cent in 2023 to US$950-billion, the IEA added.

The agency did not expressly reiterate its blockbuster projection from 2021 that investors should not fund new oil, gas and coal supply projects if the world wants to reach net-zero emissions by midcentury.

Producer group OPEC has said calls by the IEA to stop investing in oil undermine global energy security and growth. Scientists and international climate activi

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