When is an investment just a buyout? It’s not just an etymological question, and the answer could impact two major US tech companies. 

The UK’s Competition and Markets Authority announced on Thursday that it’s probing whether Amazon’s $4 billion partnership with AI startup Anthropic breaks antitrust rules. Amazon and Anthropic are both US companies, so it might seem odd for a UK watchdog to be taking an interest, but the CMA has a history of forcing Silicon Valley companies to unwind acquisitions. 

Pick Your Horses

To tap into the generative AI furor, Big Tech companies often team up with, or acquire, an AI startup. Microsoft has its relationship with OpenAI — plus, it’s partnered with French AI startup Mistral. Amazon and Google both invested billions to create partnerships with Anthropic, and Google’s part in that equation is already the subject of a CMA investigation.

The deals and partnerships allow Big Tech companies to leapfrog into the AI race, but now antitrust regulators are poking into whether they’re really just mergers in disguise: 

• Both the UK’s CMA and the US’ Federal Trade Commission are investigating Microsoft’s relationship with startup Inflection AI: The giant paid Inflection a $650 million licensing fee before hiring most of its staff.
• Amazon’s and Microsoft’s roles in the cloud computing market make them particularly exposed to antitrust scrutiny, as many startups rely on the infrastructure.

“One important aspect of the investigation is likely to be potential harms to competition that arise from the relationship between the two firms as [potential] supplier and customer,” Greg Taylor, associate professor at the Oxford Internet Institute, told The Daily Upside. “For example, might Amazon give Anthropic advantaged access to its cloud computing infrastructure, or to data held by Amazon in a way that makes it difficult for other AI firms to compete?”

He added that the US, EU, and UK have all recently brought in new rules on mergers to heighten the scrutiny of large digital firms. “More specifically, the CMA has made a commitment to increase scrutiny of AI foundation model mergers,” he added.

Generative Movers and Shakers: The CMA’s investigation comes the same week that Anthropic managed to coax one of OpenAI’s top execs over to its side: namely, co-founder John Schulman. Schulman is the latest OpenAI executive to leave this year, amid a leadership exodus that threatens to shake the company’s pole position in the generative AI hype race.

Nvidia was once a penny stock; it sold for a split-adjusted half a buck as recently as 2015. But for every Nvidia there are countless dubious companies, and occasionally there’s outright fraud — Jordan Belfort, the “Wolf of Wall Street,” ran a penny-stock scam.

After months of criticism for listing over 400 penny stocks, Nasdaq is proposing tightened rules to crack down. Makes cents.

A Penny for Your Stocks

Because they’re always at risk of being delisted, penny stocks — basically any company whose shares sell for under a dollar — aren’t popular among institutional investors. But retail investors love them. Seven of the 10 most traded US stocks in May were penny stocks, according to Cboe Global Markets data reported in June by the Financial Times.

Under current Nasdaq rules, when a stock trades for less than one dollar for 30 straight trading days, it is deemed non-compliant. The company is then given 180 calendar days to address the situation and can request an additional 180-day grace period. Lastly, it can appeal to Nasdaq’s Listings Council, which can delay a delisting. 

Penny-stock companies have also used accounting tricks to stay listed — the most popular, notably used by Chinese tea retailer-turned-crypto miner, Bit Brother, is a reverse stock split, in which shares are merged to form a smaller number with a higher value (Bit Brother is currently appealing a delisting by Nasdaq). Thus two new rule proposals, both of which require SEC approval, to prevent penny-stock traders from getting nickeled and dimed:

• The first proposed rule change would stop companies from being able to delay a delisting if they appeal the decision after their second 180-day grace period.
• The second proposed change would expedite delistings for companies that complete a reverse stock split. Nasdaq could immediately issue a delisting notice if a company’s stock drops below $1 within a year of a reverse split rather than waiting for it to trade there for 30 days. 

Piggy Bank Overflow: Citing Dow Jones Market data, The Wall Street Journal reported that there were 433 stocks listed on Nasdaq that closed below $1 on Wednesday, compared to under a dozen in 2021.

Sure, rent prices have soared since the pandemic, but spare a thought for landlords. 

Tens of billions of dollars’ worth of apartment building loans and mortgages are at risk of distress as of the end of the second quarter, according to MSCI data seen by The Wall Street Journal. That means apartment owners writ large may soon be in even deeper waters than their office building-owning counterparts.

The Rent Is Too Dang Low

The apartment market may be yet another victim of poor incentives shaped by pandemic forces. With low interest rates and low prices, investors snapped up older and downtrodden apartment buildings by the block — particularly in emerging markets like the Sun Belt — with the aim of renovating, raising rents, and flipping them at a profit. To pull off the somewhat-speculative bet, many building buyers utilized short-term, floating-rate loans, many of which got packaged into so-called commercial real-estate collateralized loan obligations. Known as CRE CLOs, these are a riskier cousin to the commercial mortgage-backed securities or bank mortgages that anyone who lived through 2008 knows didn’t fare very well.

Then, of course, came inflation (making renovations far more costly), a rise in interest rates, and a slowdown in rent hikes in many hot pandemic destinations. The CRE CLOs already started showing signs of distress earlier this year, and now the entire apartment sector is on notice:

• “The CRE CLO market is the first shoe to drop in terms of defaults in the CRE debt markets,” Mark Neely, director of alternative investments at money manager GenTrust, told Bloomberg in March. “The loans inside CRE CLOs tend to be for transitional properties, so the borrowers are counting on reselling them before the loan matures. But today many borrowers can’t sell properties for anywhere near where they bought them.”
• The distress rate of CRE CLOs hit nearly 11% in July, per CRED iQ data seen by the WSJ. Meanwhile, nearly $81 billion worth of all apartment loans are now at risk of distress, according to MSCI data, or greater than every other category; $67 billion in office loans are at risk of distress, though $40 billion of office loans are already in distress, around three-times more than for apartments.

Low Blow: In other words, apartment owners are desperate for that rate hike. As for potential homebuyers, they’re already benefiting from it. The average 30-year fixed mortgage rate fell around a quarter point to 6.47%, Freddie Mac said Thursday. That’s the lowest point in 15 months, which could be more bad news for landlords looking for new renters if suddenly they can afford to buy instead.