The Fed, Chips, and IPOs

Editor’s Note: Happy Friday, dear reader!


The Fed Keeps Rates Still

This week, the Federal Reserve surprised absolutely no one by announcing it’s holding interest rates steady. The Federal Open Market Committee (FOMC) decided to keep its benchmark overnight borrowing rate in the same range of 5.25% to 5.5% that it has been in since last July.

However, according to the central bank, we should be on the lookout for three potential rate cuts before the end of the year. That’s one fewer than the Fed penciled into its “dot plot” at the December meeting.

Each of these three cuts should knock the benchmark rate by 25 basis points.

The FOMC is also expecting to cut rates three times in 2025, followed by three more cuts in 2026 and two in 2027. According to the Fed’s meeting notes, the current goal is to bring the fed funds rate down to 2.6%.

“Recent indicators suggest that economic activity has been expanding at a solid pace,” a Fed statement read yesterday. “Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.”

The Fed stressed that it’s keeping its commitment to returning inflation to a 2% annual rate. The latest reading of the Personal Consumption Expenditure (PCE) index — the Fed’s favorite measure of inflation — showed a 2.6% annual increase.

“In assessing the appropriate stance of monetary policy, the [FOMC] will continue to monitor the implications of incoming information for the economic outlook,” the Fed statement said. “The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals.

“The committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

Intel Gets a CHIPS Award

A new CHIPS Act award will give Intel (NSDQ: INTC) as much as $8.5 billion in funding from the government, as well as up to $11 billion in loans related to the act.

According to U.S. Secretary of Commerce Gina Raimondo, the CHIPS Act award “means leading-edge semiconductors made in the United States of America.” According to Raimondo, the program will boost the U.S.’s share of leading-edge chip production from zero to 20% by 2030.

The CHIPS Act is intended to reduce America’s dependency on semiconductor chipmaking facilities in China and Taiwan. According to the Semiconductor Industry Association, these two countries have taken the lead in recent years, while the U.S.’s chip manufacturing capacity has tumbled from 37% in 1990 to 12% in 2020.

The CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act earmarks roughly $53 billion worth of incentives for chip manufacturing operations on American soil.

According to Intel, it would spend its money on building fabrication and research facilities in Arizona, New Mexico, Ohio, and Oregon. Before receiving the award, the company had already announced a $100 investment in U.S. campuses.

Developing these facilities costs a lot of money.

Intel’s planned Ohio factory will cost more than an estimated $20 billion, with production slated to begin in 2027 or 2028. According to CEO Pat Gelsinger, the facility will make artificial intelligence (AI) geared chips for Intel, as well as perhaps AI chips for other semiconductor companies.

“Go drive by the Ohio site,” Gelsinger said. “There are a whole lot of cranes and concrete job trucks that are building what we believe will become the premier manufacturing location, at scale, particularly for AI chips in America.

Micron’s Expectation-Beating Quarter

This week, Micron (NSDQ: MU) became the latest company to report better-than-expected earnings thanks to the artificial intelligence (AI) boom.

The Idaho-based company reported revenue of $5.82 billion. Analysts had expected only $5.35 billion. In the year-ago quarter, Micron’s revenue totaled $3.69 billion.

In addition, fiscal second-quarter earnings per share (EPS) reached 42 cents, beating Wall Street’s expectations of 24 cents per share.

Micron also reported a net income of $793 million. That’s a huge improvement from the $2.3 billion net loss the company reported in the second quarter of the previous fiscal year.

For the current quarter, Micron is expecting revenue of $6.6 billion. Analysts have been looking for $6.02 billion.

“We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multiyear opportunity enabled by AI,” Micron CEO Sanjay Mehrotra said in a press release.

Micron specializes in computer data storage and memory products such as flash drives and chips.

In fact, Micron is a major chip supplier to Nvidia (NSDQ: NVDA), one of the “buzziest” AI-related companies.

According to Micron, it has already sold out of high-bandwidth memory (HBM) chips — which are used in AI applications — for 2024. In addition, most of the company’s supply of HBM chips for next year is already spoken for, as well.

In the last 12 months, Micron’s stock has risen by roughly 90%. Since the start of 2024, the company’s stock has seen a nearly 40% gain.

The Return of the IPOs

Reddit (NYSE: RDDT) debuted on the New York Stock Exchange (NYSE) yesterday, with shares opening nearly 40% above their initial public offering (IPO) price.

The social media company’s IPO price of $35 — at its top range — gave Reddit a valuation of $6.4 billion.

That’s more than 30% below the valuation Reddit received during a private funding round back in 2021 ($10 billion).

Reddit wasn’t alone in making a stock-market debut this week. Astera Labs (NSDQ: ALAB) also debuted on the Nasdaq stock exchange Wednesday. On the first day of trading, shares of ALAB popped by 72%.

It looks like there’s still some life left in the U.S. IPO market, which had been all but left for dead back in 2022.

According to data analysts at EY, companies held 128 IPOs in the U.S. last year, raising a total of $22.6 billion.

By comparison, in 2022, there were only 90 IPOs that raised $8.6 billion.

Take a look:

Infographic: Is the U.S. IPO Market Coming Back to Life? | Statista You will find more infographics at Statista

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