Tuesday, May 24th 2022

Three Things (5/24)

Commentary

“In the middle of every difficulty lies opportunity ” – Albert Einstein

1) Amazon to sublet warehouse space as online sales slump

  • Amazon intends to sublet 10 million square feet of extra capacity in some of its largest markets: New York Metro, Southern California, and Atlanta.

  • The cut in warehouse space represents about 5% of the total square footage added during the pandemic.

  • In its April earnings report, the company communicated it expected the excess space to contribute to $10 billion in extra costs in the first half of 2022.

Titan’s Takeaway: The pull forward in online demand appears to be causing capital allocators issues as the surge in pandemic-era shopping has faded. As shareholders of Amazon, we recognize the online retail giant also functions as a real estate giant and the move represents an efficient way to generate free-cash-flow without losing capacity for future demand growth.

2) Broadcom looks to expand enterprise software business with acquisition of VMware

  • Broadcom is in late-stage talks to acquire cloud computing company, VMware, setting up a blockbuster tech deal.

  • Shares of VMware surged 19% on Monday following reports of the potential acquisition.

  • Takeovers of technology companies globally are up 46% this year to $263 billion, according to data compiled by Bloomberg.

Titan’s Takeaway: Given the recent compression in software valuation, it does not come as a surprise that Broadcom is looking to add to its enterprise software acquisition history. Recent market volatility may provide well-capitalized companies the opportunity to acquire growth via acquisitions at an attractive price, but in a fragile market, the bar for CapEx needs to be even higher.

3) The Biden administration unveils Indo-Pacific economic pact

  • The Indo-Pacific Economic Framework (IPEF) is set to connect 13 countries that including Australia, India, and Japan which constitute roughly 40% of global GDP.

  • The main goals for the framework include establishing robust standards for trade while establishing critical mineral supply chains to better anticipate and prevent global disruptions.

  • The framework excludes China but leaves the door open for the country to join should Beijing be able to meet a set of standards identified by the participating countries.

Titan’s Takeaway: Critical minerals (such as cobalt, lithium, etc.) will be vastly important for the growth and scalability of future technologies across the growth stack. This pact builds on our conviction in the U.S. tech sector’s long-term growth potential, and we’ll welcome any global coordination that can ensure supply chains never snarl like this again.

As of this writing, AMZN was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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