Closing summary
Nvidia has become the world’s first $5tn company as the artificial intelligence industry and wider US stock market boom. Just three months ago, the Silicon Valley chipmaker was first to break through the barrier of $4tn in market value.
In comparison, Nvidia’s value is greater than the GDP of India, Japan and the United Kingdom, according to the International Monetary Fund (IMF).
Shortly after US stock markets opened on Wednesday, Nvidia’s shares touched $207.86 with 24.3bn shares outstanding, putting its market cap at $5.05tn. Ravenous appetite for Nvidia’s chips, seen as the most cutting edge in powering artificial intelligence products and software, is the main reason that the company’s stock price has increased so rapidly since early 2023.
The US stock market has reached multiple record highs this week, buoyed up by expansive investment in artificial intelligence.
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Thank you for reading! We’ll be back tomorrow. Take care – JK
Private credit bosses have played down fears raised by the IMF and Bank of England, saying the sector is “safer” and offers more stability to the financial system than traditional, regulated banks.
Senior bosses at private credit giants Apollo, Ares and Blackstone were adamant, during a session with the Lords Financial Services Regulation Committee on Wednesday, that there was ultimately ‘nothing to see’ in terms of heightened risk following the exponential rise of the private credit industry.
Even the recent collapse of Tricolour and First Brands - two US firms serving the auto-industry - was wrongly pegged on the private credit industry, when in fact only a small portion of those firms’ loans came from the sector. This amounted to “misinformation,” they said.
However, they suggested it was natural for regulators to be poking around the private credit industry - now worth nearly $3tn globally - but that regulators were unlikely to find any problems.
It comes as the Bank of England confirmed last week that it was preparing to run stress tests to check on potential systemic risks, particularly as a result of interconnectivity with the banking industry, which often provides loans to private credit firms that issue loans directly to businesses.
Daniel Leiter, senior managing director at Blackstone and head of international and global head of liquid credit strategies at Blackstone Credit and Insurance said:
I think they will come to the conclusion that what is happening in private credit, is fundamentally safer to happen in private credit, rather than on banks balance sheets.
He claimed that this was partly because private credit was funded through institutional investors like pension funds and insurers - rather than being backed by consumer deposits - which could lock in their money for longer, and that the private credit industry maintained close relationships with businesses they lend to, following rigorous due diligence.
He also argued that if borrowers went bust, the private credit firm would take the loss, and it would not result in contagion to other funds in the firm let alone the wider financial system. Furthermore, banks borrowed much more per pound, in order to issue loans, than private credit firms, he said.
The regulators will do this work, and will come to the conclusion that the system is going to be more stable whenever we do go through economics hocks, because now, away from just relying on the banking system, private credit can provide a source of financing through difficult times.
Leiter said this justified what many claim is a lack of close supervision by regulators: “it should be regulated differently.”
It comes a week after Bank of England’s governor, Andrew Bailey, said the recent failures of Tricolour and First Brands had worrying echoes of the sub-prime mortgage crisis that kicked off the global financial crash of 2008.
Meanwhile, the IMF warned that a downturn could have ripple effects across the financial system, given that banks were increasingly exposed to a largely unregulated private credit industry. There are concerns that a downturn could destabilise traditional banks that issue loans to the shadow banking sector.
