Market Analysis by covering: Microsoft Corporation, Oracle Corporation, Alphabet Inc Class A, Amazon.com Inc. Read 's Market Analysis on Investing.com
Oil prices remain near $100 as Iran supply fears overshadow Russia measuresThe technology sector has been on edge in recent months, in part due to the evolving landscape of AI innovation funding. More specifically, equity investors of the largest AI companies are growing increasingly concerned because debt is being used more frequently as cash flows/profits are no longer sufficient to fully cover capital expenditures.
Oracle sparked the concern with a $18 billion debt offering last September, followed by a $25 billion offering in February. Given the large amount of its outstanding debt, Oracle’s said on Wednesday it has allocated $50 million of its corporate treasury to STRC, the preferred stock issued by Strategy. The investment represents more than one-third of Strive’s treasury reserves and reflects growing institutional interest in yield-generating securities linked to Bitcoin-focused treasury strategies, according to a company announcement. At first blush, the deal makes sense as explained by its Chief Risk Officer, Jeff Walton, in the Tweet below. Notably, the $50M STRC purchase was drawn from existing cash reserves as Strive held roughly $143.4M in cash and equivalents before the transaction. This past January, Strive issued a 12.75% preferred offering that was primarily used to retire ~$110M in debt from the Semler Scientific acquisition and to pay off a Coinbase loan. What is important is that the cash used from that offering at 12.75% is being used to buy STRC preferred stock yielding 11.50%. The negative carry is a crucial risk on abasis, as Strive’s outstanding preferred obligations cost more than what STRC yields, meaning the 11.5% current yield can change. By allocating a third of its balance sheet to a trade that will have to cover a negative carry, Strive introduces further basis risk. Moreover, Strive risks bankruptcy if Strategy cannot make payments on its preferred debt or defaults on it. Even more confounding, Strive doesn’t benefit if Bitcoin and/or Strategy shares rise, as it is buying preferred shares with no equity stake.: Several analysts have flagged this as the more profound concern. Strategy raises money via STRC and uses proceeds to buy Bitcoin. Strive holds Bitcoin and buys STRC. Both entities’ ability to service preferred obligations is ultimately correlated to the same underlying asset — Bitcoin. This isn’t diversification; it’s concentrated, layered exposure. If Bitcoin drops sharply, Strategy may struggle to service STRC, precisely when Strive’s own balance sheet is also under stress. Unless we are missing something, this transaction bodes poorly for Strive shareholders. Not surprisingly, Strive shares are down 97% since last May, following a 20-for-1 reverse split, as shown below. In other words, shareholders are already evaluating management’s capital-allocation track record.Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks. Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes.and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website. It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
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