The LIT Sunday News.

Quantum-Computing Stocks Plummet After Nvidia CEO’s Caution

Quantum-computing stocks tumbled sharply after Nvidia CEO Jensen Huang offered a sobering outlook for the sector, estimating that "very simple quantum computers" could still be 15 to 30 years away, with 20 years being the most realistic timeframe.

Market Impact

Shares of quantum-computing companies saw dramatic declines:

• Rigetti Computing (RGTI): -45%
• Quantum Computing Inc. (QUBT): -43%
• IonQ Inc. (IONQ): -39%
• D-Wave Quantum Inc. (QBTS): -36%

These stocks had previously soared—Rigetti and Quantum Computing surged over 2,000% in the past three months—but Huang’s remarks tempered the hype.

The Reality Check

Huang, speaking at the CES tech conference, highlighted quantum computing’s limitations. While suited for "small-data, big-compute" problems, quantum machines remain impractical for handling large data volumes. This underlines the sector's long road to commercial viability.

Revenue Challenges

Despite their market capitalization, quantum firms generate minimal revenue:

• Quantum Computing Inc. reported $101,000 in Q3 revenue, with 2024 projections of just $500,000.
• IonQ is expected to generate $41.6 million in annual revenue, modest for its $10 billion market cap.

Investor Caution

The commentary has cast doubt on near-term growth prospects for the quantum sector, which has seen exponential but speculative stock price increases. As Huang noted, Nvidia aims to support quantum computing’s development, but the timeline for meaningful breakthroughs remains long.

This reality check serves as a reminder for investors of the risks tied to high-flying but nascent technologies.

China Moves to Defend Renminbi as Wall Street Bets Against It

The People’s Bank of China (PBoC) is launching its largest-ever sale of offshore bills—Rmb60bn ($8.2bn) in January—to stabilize the renminbi amid mounting pressure from Wall Street, which is betting on further depreciation due to China’s economic slowdown and Donald Trump’s tariff threats.

Currency Under Pressure

The renminbi recently weakened past Rmb7.33 per dollar, its lowest level since September 2023, and global banks predict it could hit Rmb7.5 or beyond by year-end, levels not seen since 2007. A weaker renminbi would help Chinese exporters counter U.S. tariffs but could reignite accusations of currency manipulation.

Key Measures by PBoC

The bill sale is designed to absorb offshore renminbi liquidity, making it costlier for traders to short the currency. Additionally, the overnight borrowing rate for offshore renminbi in Hong Kong spiked above 8%, the highest in three years, further increasing the cost of speculative bets against the renminbi.

Despite these measures, investors expect gradual depreciation as the PBoC tolerates a managed weakening to balance trade competitiveness and economic stability.

Forecasts for 2025

• Major banks (JPMorgan, Barclays, BNP Paribas): Rmb7.5 by year-end.
• Nomura: Rmb7.6 by May.
• Bank of America: Rmb7.4 by December.
• Abrdn: Potential drop to Rmb8–8.1 by mid-2025 if U.S. tariffs escalate.

Implications

A cheaper renminbi could support exporters but risks further tension with the U.S. over trade and currency policies. The extent of depreciation may hinge on the Trump administration’s tariff decisions, with investors bracing for significant policy impacts after the January 20 inauguration.

Biden Administration to Expand AI Chip Export Restrictions

The Biden administration is reportedly finalizing new restrictions on the export of AI microchips, which would impact companies like Nvidia and Advanced Micro Devices (AMD). According to Bloomberg, the rules aim to limit the sale of AI chips used in data centers, broadening existing restrictions already in place for China and Russia.

Three-Tier System

The new regulations would introduce a three-tier framework:

• Top-tier U.S. allies: Unrestricted access to AI chips.
• Blocked countries: No access to advanced chips.
• Most nations: Country-specific limits based on security and human rights compliance.

Countries can increase their access by meeting set standards.

Industry Concerns

Nvidia criticized the proposed policy, arguing it represents a significant shift that could harm U.S. economic growth and leadership in AI. Both Nvidia (NVDA) and AMD (AMD) saw their shares fall by 1% in after-hours trading following the news.

The expanded restrictions could further tighten access to cutting-edge AI technology globally, potentially reshaping the semiconductor industry and deepening trade tensions. The policy is expected to be announced as early as Friday.

UK Long-Term Borrowing Costs Reach Highest Level Since 1998

The yield on the UK’s 30-year gilt surged to 5.25%, the highest since 1998, as a global bond sell-off puts pressure on Chancellor Rachel Reeves’ recently revised fiscal rules. The Treasury’s latest debt auction saw £2.25 billion sold at a yield of 5.20%, reflecting rising borrowing costs amid inflation fears and sluggish economic growth.

Key Drivers

• Global Bond Sell-Off: Investors are reacting to inflationary concerns, partly fueled by U.S. President-elect Donald Trump’s tariff plans.
• Stagflation Risks: Weak UK growth and persistent inflation leave the Bank of England limited in its ability to cut rates, raising fears of stagflation.
• Economic Slowdown: The UK economy contracted for a second consecutive month in October, with no growth in Q3.

Fiscal Challenges

Reeves left herself only £9.9 billion of fiscal "headroom" in her October Budget. Economists warn that sustained high yields could shrink this to just £1.1 billion, forcing the chancellor to consider tax hikes or spending cuts to stay within fiscal rules.

Treasury Response

The Treasury stated that meeting fiscal rules remains "non-negotiable" and is exploring public spending efficiencies ahead of the March 26 forecast from the Office for Budget Responsibility (OBR). Should the OBR project a breach of fiscal rules, Reeves may face pressure to enact difficult fiscal measures before her next planned Budget in the autumn.

Outlook

With fiscal credibility on the line, Reeves must navigate the twin challenges of rising borrowing costs and slowing economic growth. Any failure to meet fiscal targets could force significant policy shifts, impacting both public spending and taxation.

Tesla Unveils Redesigned Model Y for Asian Markets Amid Sales Decline

Tesla has introduced a redesigned Model Y, targeting the Chinese and Asia-Pacific markets, marking the SUV’s first major update since its launch in 2020. This comes as Tesla experienced its first year-over-year drop in vehicle deliveries in 2024, a notable decline since it began selling mass-market cars in 2012.

Key Updates

• Exterior:




• A sharper, less rounded front end, similar to the updated Model 3.
• A continuous light bar replaces the traditional headlights, echoing the Cybertruck and Cybercab prototypes.
• A single taillight runs across the rear under a subtle hatch protrusion, described by Tesla as the “first indirect reflective body panel taillight.”
• Interior:




• Ambient light bar wrapping around the cabin with customizable colors.
• Powered rear seats and a new touchscreen for rear passengers.
• Enhanced suspension and reduced road noise.
• Performance:




• Slightly lighter weight and marginally improved range, though not a dramatic leap in efficiency.

Market Context

The updated Model Y aligns more closely with the design of Chinese EV competitors, which have pressured Tesla through a price war and captured market share despite Tesla’s record sales in China.

Availability

The new Model Y is expected to start deliveries in China by March 2025, with possible rollouts to Europe and the U.S. later in the year.

Future Plans

With all core models—Model Y, Model 3, Model S, and Model X—now updated, Tesla has hinted at releasing a new, cheaper model later this year. However, CEO Elon Musk has ruled out a $25,000 price point, despite previous interest in offering a more affordable EV.

The refreshed Model Y underscores Tesla’s push to maintain its competitive edge in key global markets while addressing intensifying challenges from rivals in the EV space.

Chery to Launch Battery Swap-Enabled Models Using Nio Technology in Q3

Chery Automotive will introduce two battery swap-enabled models—an SUV and a sedan—under its Exeed sub-brand in the third quarter of 2025. These will be the first non-Nio vehicles to use Nio's battery swap technology, a cornerstone of the company's strategic alliances with other automakers.

Key Details

• Collaboration with Nio: Chery and Nio entered a strategic agreement in January 2024 to develop a battery swap ecosystem, including standardization, technology, and service networks.
• Testing Underway: Both models have been spotted undergoing tests at Nio’s battery swap stations, with Nio Vice President Shen Fei confirming the information on social media.
• Expected Launch: The models are set to hit the market in Q3 2025 after an 18-month development cycle.

Nio’s Battery Swap Alliance

• Nio CEO William Li revealed that the alliance’s first model had already begun winter testing.
• By 2027-2028, Nio expects a significant increase in models built using its battery swap technology, further strengthening its Nio Power division.

Investment in Nio Power

Nio Power, which focuses on battery infrastructure, received a RMB 1.5 billion ($205 million) investment in 2024, marking its first external funding. Nio still retains a 90% stake in the division.

Implications

The partnership with Chery signals growing adoption of Nio’s battery swap system, which aims to revolutionize EV energy solutions by offering faster, more convenient battery replacement. This could enhance Nio's competitiveness in the EV market while expanding its infrastructure footprint.

US Corporate Bankruptcies Reach 14-Year High Amid Rising Interest Rates

In 2024, US corporate bankruptcies surged to their highest level since 2010, driven by elevated interest rates and waning consumer demand. According to S&P Global Market Intelligence, 686 companies filed for bankruptcy last year, an 8% increase from 2023, as struggling firms failed to navigate inflationary pressures and reduced discretionary spending.

Notable Bankruptcies

High-profile failures included:

• Party City, which filed for bankruptcy in December and announced the closure of 700 stores.
• Tupperware, Red Lobster, Spirit Airlines, and Avon Products, all impacted by weakened consumer demand.

Economic Pressures

Economists point to a challenging environment:

• Persistently high costs of goods and services.
• Reduced consumer spending, particularly among lower-income households.
• The end of pandemic-era stimulus, which had previously bolstered consumer confidence.

Out-of-Court Restructurings

Fitch Ratings reported a rise in out-of-court liability management exercises, where companies restructure debt to avoid filing for bankruptcy. These actions now account for a significant share of corporate debt defaults but often delay the inevitable for companies with operational challenges.

Federal Reserve and Interest Rates

The Federal Reserve began lowering rates in late 2024 but only plans modest reductions in 2025. The relatively low spread between risky corporate and government debt rates has mitigated broader economic risks, according to Peter Tchir of Academy Securities.

Outlook

With at least 30 companies filing for bankruptcy in 2024 with over $1 billion in liabilities, the trend underscores the lingering impact of high borrowing costs. Experts warn that while liability management exercises may offer temporary relief, sustainable profitability and lower interest rates are essential for long-term stability.

Uber and NVIDIA Join Forces to Advance Autonomous Driving Technology

Uber Technologies, Inc. (NYSE: UBER) and NVIDIA Corp. (NASDAQ: NVDA) announced a partnership aimed at accelerating the development of AI-driven autonomous mobility solutions. The collaboration will leverage Uber’s vast trip data alongside NVIDIA’s advanced AI platforms to enhance the capabilities of autonomous vehicle (AV) models.

Key Components of the Partnership

• NVIDIA Cosmos Platform:




• A cutting-edge system for developing physical AI systems, including robots and AVs.
• Features generative world foundation models, tokenizers, and pipelines for data processing and model customization.
• Designed to reduce costs and democratize access to physical AI development tools.
• NVIDIA DGX Cloud:




• A high-performance, fully managed AI platform preconfigured with NVIDIA’s latest architecture.
• Offers scalable computing power to build and deploy advanced AI models efficiently.

Vision for the Future

Uber CEO Dara Khosrowshahi highlighted the potential of generative AI to shape the future of mobility, emphasizing the need for powerful compute and rich datasets. "By working with NVIDIA, we can supercharge the timeline for safe and scalable autonomous driving solutions," he said.

The companies plan to release further details on their joint efforts later this year, with the ultimate goal of creating safer and more scalable AV solutions for the transportation industry. This partnership underscores the growing synergy between AI and mobility to transform the future of transportation.

Fed’s QT Strategy Nearing Its End as Bond Yields Rise

The Federal Reserve’s quantitative tightening (QT) program, aimed at shrinking its balance sheet post-COVID, is under scrutiny as 10-year Treasury yields approach 4.7%, the highest since April. Rising yields are increasing borrowing costs across sectors and raising concerns about the sustainability of the Fed’s current policy stance.

Why Yields Are Rising

Several factors are contributing to higher yields:

• Strong Economic Data: Suggests inflation may remain elevated.
• Fiscal Policy Concerns: Market worries over larger deficits under full Republican control.
• Shift in Treasury Issuance: A higher share of short-term debt is making long-duration bonds scarcer, potentially lifting prices and suppressing yields.

Treasury Secretary Scott Bessent may address this imbalance by issuing more long-duration debt, a move markets may already be anticipating.

Will the Fed Halt QT?

The Fed appears unlikely to pause or reverse QT unless severe market dysfunction arises. Darrell Duffie of Stanford emphasizes that QT would only stop if the Treasury market faced a major liquidity crisis, not merely high yields.

A recent study suggests QT has had a relatively muted impact on yields, increasing them by just 8 basis points. This implies that halting QT might offer little relief to the Treasury market.

When Will QT End?

The Fed’s goal is to reach a balance where bank reserves normalize without impairing market liquidity. Analysts estimate QT could naturally conclude this year, as current reserve levels near the threshold seen before the 2019 repo crisis.

Impact on Markets

The rising yields signal market discomfort with fiscal and monetary policies, raising questions about potential tightening or loosening of QT. The focus now shifts to whether the Fed’s actions can stabilize markets without disrupting the broader financial system.

Big Tech’s Rising Capex and Flat Cash Flow

The surge in AI-driven capital expenditures by major tech firms like Meta, Amazon, and Alphabet is straining free cash flow, despite robust revenue generation. While these companies remain cash flow positive, trends show flat to declining cash generation, prompting concerns about sustainability.

• Free Cash Flow Trends: Tech companies continue to generate substantial free cash but face growing capex demands, particularly for AI data centers.
• Investor Implications: Rising capex may affect earnings per share and stock performance, as seen during previous cash flow downturns in 2021–2022, when most tech stocks underperformed.

Outlook

Tech firms anticipate higher capex in 2025, with more clarity expected from Q4 earnings. The challenge lies in balancing long-term AI investments with maintaining profitability and shareholder returns. Depreciation methods for data center assets will also play a key role in shaping future earnings.

Dow Sees Worst Start to Year Since 2016 Amid Rising Bond Yields

The Dow Jones Industrial Average is off to its worst start since 2016, falling 1.4% in the first six trading days of 2025. On Friday, the Dow dropped nearly 700 points as bond yields jumped, driven by stronger-than-expected U.S. jobs data that signaled the Federal Reserve might delay cutting interest rates.

Market Reactions

• Major Index Losses:




• Dow: -1.6%
• S&P 500: -1.5% (year-to-date: -0.9%)
• Nasdaq: -1.6%
• Sector Performance:
  The S&P 500’s real estate sector led losses, down 2.5% on Friday and 3.8% year-to-date. Consumer staples and financials followed with losses of over 2%, while the information technology sector fell 1.7%.
• Treasury Yields:
  The 10-year Treasury yield surged to 4.772%, its highest level since November 2023.

Labor Market Strength

The U.S. added 256,000 jobs in December, and the unemployment rate dropped to 4.1%. While the report signaled a resilient economy, it reinforced the likelihood of the Fed maintaining its current interest rate of 4.25% to 4.5% through its next two meetings, dampening hopes for early rate cuts.

Fed Policy Outlook

• Rate Expectations:




• The CME FedWatch Tool shows a 75% chance the Fed will hold rates in March.
• Traders see a 55.6% chance of a rate cut by May.
• Inflation Concerns:
  Although wage growth slowed slightly in December, further inflation data next week could intensify market volatility and extend the selloff.

The Cboe Volatility Index (VIX), Wall Street’s fear gauge, has climbed 12.6% this month, closing at 19.54 on Friday.

Analyst Take

Citigroup analysts warned that elevated volatility could persist, urging investors to adopt a more cautious approach as market conditions remain uncertain.

Falling Chinese Bond Yields Signal Growing Deflation Concerns

China’s 10-year bond yield fell to a record low of 1.6%, reflecting deepening concerns about deflation in the world’s second-largest economy. The downward shift in the yield curve highlights pessimism about long-term growth and inflation, despite Beijing’s recent attempts to stimulate economic activity.

Key Economic Indicators

• Consumer prices rose just 0.1% in December year-over-year, while factory prices fell 2.3%, marking over two years of deflation in industrial goods.
• GDP growth was estimated at 5% in 2024, with the potential for further slowdown due to expected U.S. tariffs under President-elect Donald Trump.

Policy Response and Challenges

• The People’s Bank of China (PBoC) adopted a “moderately loose” monetary policy and paused its government bond purchase program.
• A December Communist Party meeting led by Xi Jinping emphasized boosting consumption over industrial priorities. However, analysts warn that piecemeal easing may echo Japan’s prolonged deflationary struggles.
• Economists, including those at Citi and Goldman Sachs, call for stronger fiscal measures, suggesting that direct cash transfers to low-income households could be more impactful than corporate bailouts.

Deflationary Cycle Risks

• Liquidity trap: High household savings and weak loan demand have left banks flush with cash, driving bond purchases but failing to stimulate growth.
• Without significant fiscal stimulus, deflation could persist, leading to further rate cuts, declining wages, and delayed consumer spending.

Outlook

Analysts at Standard Chartered predict Chinese bond yields could fall another 0.2 percentage points to 1.4% by the end of 2025, especially if the government increases bond issuance for stimulus. However, the need for concrete fiscal actions has grown urgent, as investors grow impatient with Beijing’s cautious approach.

Economists warn that unless decisive measures are implemented, China risks entering a prolonged deflationary cycle, mirroring Japan’s experience in the 1990s.

Disney Faces Growing Confusion Over Streaming Strategy as Venu Sports Is Shelved

Disney’s streaming plans have become more convoluted following the cancellation of its Venu Sports joint venture with Fox and Warner Bros. Discovery (WBD) and the announcement of its intention to merge FuboTV with Hulu + Live TV.

Complicated Streaming Landscape

Disney already operates several streaming platforms, including Disney+, ESPN+, and Hulu. Adding Fubo to the mix could dilute its focus, as some analysts question whether Disney should continue with the Fubo deal, particularly after Venu’s abrupt cancellation.

The Venu project was initially aimed at bundling sports content but was axed amid opposition from DirecTV and Dish Network and the loss of key rights like the NBA.

Diverging Analyst Views

• Skeptics:




• Robert Fishman, MoffettNathanson: Believes Disney should drop the Fubo deal and concentrate on streamlining its sports and streaming strategy. "Walking away from Fubo, even at the cost of a $130 million termination fee, might restore investor confidence," he wrote.
• Supporters:




• Alicia Reese, Wedbush: Argues that integrating Fubo could simplify Disney’s live TV operations, allowing Fubo to handle live content while Disney focuses on other streaming priorities.

Key Considerations

• If the merger proceeds, Disney will own 70% of Fubo, with Fubo’s CEO David Gandler leading the combined service.
• However, the $130 million termination fee looms as a potential barrier to abandoning the deal.

Future Outlook

Disney’s next steps will be closely watched, as its fragmented streaming strategy needs clarity. Analysts agree that a cohesive focus on sports and streaming is critical for long-term success in an increasingly competitive market.

Alcohol Stocks Slide in 2025 Amid Tariffs, Health Warnings, and Inflation Concerns

Alcohol companies have had a rocky start to 2025, with industry heavyweights like Constellation Brands and Anheuser-Busch InBev experiencing sharp declines. A combination of proposed tariffs, health concerns, and inflationary pressures has created a challenging environment for these stocks.

Key Stock Performances

• Constellation Brands (STZ): Shares plunged 17% to $182 after missing quarterly sales expectations and slashing its fiscal-year outlook. The company’s reliance on Mexican lagers like Modelo and Corona makes it especially vulnerable to potential 25% tariffs under President-elect Donald Trump. Shares are down 18% year-to-date.
• Anheuser-Busch InBev (BUD): Shares fell 8% this year, while Molson Coors (TAP) dropped 9% and Brown-Forman (BF.B) declined 11%.
• Diageo: Known for Guinness and Tanqueray, Diageo shares slipped 4%.

For comparison, the S&P 500 is down about 1% over the same period.

Factors Pressuring the Industry

• Health Warnings:
  On January 3, U.S. Surgeon General Vivek Murthy issued an advisory linking alcohol consumption to cancer risks, recommending more prominent warning labels. This could further dampen consumer sentiment.
• Tariff Threats:
  Trump’s proposed tariffs on goods from countries like Mexico and EU nations could force companies to raise prices or face increased levies on U.S.-made exports. Investment bank Bernstein noted that tariffs are casting a "Trump-sized shadow" over the industry, particularly for Constellation and Brown-Forman.
• Inflation and Consumer Spending:
  Persistently high prices have made consumers more cautious, with many seeking better value. Investment bank TD Cowen suggested that food and beverage brands may need to reset their pricing strategies to regain consumer trust.

Industry Outlook

Despite the downturn, Bernstein remains optimistic about the long-term fundamentals and valuations of Constellation and Brown-Forman but warns that clarity on tariffs is essential. Constellation’s CEO, Bill Newlands, acknowledged the ongoing challenges, noting subdued consumer spending and a shift toward value-seeking behaviors.

Until clearer policies on tariffs emerge and inflationary pressures ease, alcohol stocks may continue to struggle. Companies face a delicate balance between maintaining margins and addressing consumer price sensitivity, which will likely shape the sector’s trajectory in 2025.

Rumble Signs Cloud Services Deal with El Salvador

Rumble has entered into an agreement with the government of El Salvador to provide cloud storage and computing services, marking a significant milestone for the video platform in expanding its reach into governmental infrastructure.

A Push for Digital Sovereignty

The deal highlights El Salvador's interest in moving toward independent tech solutions, a shift Chief Executive Chris Pavlovski sees as part of a broader global trend. He emphasized that Rumble’s infrastructure provides a secure alternative to Big Tech, helping governments avoid potential “technological silencing” due to differing views from Silicon Valley.

Context and Political Ties

Rumble's agreement follows El Salvador's historic adoption of Bitcoin as legal tender, though much of the initiative was recently scaled back after securing a $1.4 billion loan from the International Monetary Fund (IMF).

The video platform has strong ties to conservative figures, including JD Vance, Vice President-Elect of the U.S., and investor Peter Thiel. Rumble positions itself as a platform promoting free speech and challenging mainstream tech companies.

Implications for Big Tech

This partnership underscores a growing global shift toward alternative tech providers. It comes amid broader moves by companies like Meta Platforms, which recently announced plans to end fact-checking and lift content restrictions across Facebook and Instagram to align with the values of free expression, particularly as Donald Trump prepares for another presidential term.

Outlook

The Rumble-El Salvador deal could pave the way for more governments to explore independent tech solutions, signaling a growing desire for sovereignty in digital infrastructure. However, the full scope and impact of the partnership remain to be seen, as financial terms were not disclosed.