Three Things (12/30)

Honda & Nissan cozy up

Auto alliance … Honda (HMC) and Nissan (NSANY), two of Japan’s leading automakers, are accelerating toward a potential merger that could reshape the global auto industry. The companies have signed a memorandum of understanding to explore merging into a single entity, with Mitsubishi Motors joining talks, as well. If realized, this merger would create the world’s third-largest automaker, producing approximately 8 million vehicles annually.

Chart via Top Data Source on YouTube

The would-be merger offers mutual benefits. Honda could leverage Nissan’s expertise in EV batteries and hybrid technology, while Nissan may benefit from Honda’s strong global presence. Together, the companies hope to cut costs and increase competitiveness as they lag behind rivals like Tesla (TSLA) and BYD (BYDDY) in EV production. Shareholders have responded positively—Nissan’s shares surged 20% following the announcement, and Honda’s rose nearly 4%.

Honda and Nissan aim to finalize details by June 2025 and list a joint holding company on the Tokyo Stock Exchange by 2026. Still, Honda President Toshihiro Mibe admitted, “The possibility of this not being implemented is not zero.”

History cautions against over-optimism. Automotive mergers often falter due to clashing cultures and power struggles. DaimlerChrysler’s failed union in the 2000s serves as a prominent example. A merger could also face political and operational challenges, such as plant closures or downsizing. Despite these hurdles, analysts see potential if Honda and Nissan emulate successful partnerships like Hyundai (HYMTF) and Kia.

Google’s AI gamble

Rivalry rising … Google (GOOG) is accelerating its push into artificial intelligence with plans to scale its Gemini AI product in 2025, positioning it as a rival to OpenAI’s ChatGPT. CEO Sundar Pichai recently told employees that “the stakes are high,” underscoring the urgency for Gemini to dominate a growing market.

OpenAI’s ChatGPT, introduced in late 2022, quickly became synonymous with generative AI, much like Google is with search. Gemini, originally launched as Bard in 2023 and rebranded in 2024, aims to rival ChatGPT by offering advanced features like real-time data retrieval and integration across Google Workspace apps. While ChatGPT excels in creative tasks, Gemini has carved a niche in search and productivity tools.

Leadership recognizes the challenge of overtaking ChatGPT’s first-mover advantage. Pichai emphasized execution, saying, “You don’t always need to be first, but must be best in class.” The strategy includes turbocharging Gemini’s evolution and scaling it to consumer and professional users alike. Notable differences between the platforms include Gemini’s multimodal capabilities and closer integration with Google services, offering potential advantages in utility and user base.

Google executives envision a future where Gemini is a universal assistant, bridging diverse devices and domains. But with regulatory pressures and fierce competition, 2025 is poised to test whether Gemini can secure its spot at the forefront of AI innovation.

HIPAA’s tech boost

New rules … The U.S. Department of Health and Human Services (HHS) Office for Civil Rights is proposing significant updates to the HIPAA Security Rule, aiming to bolster cybersecurity across the healthcare industry. These changes, currently open for a 60-day public comment period, include multifactor authentication, data encryption, anti-malware tools, and regular compliance audits. HHS estimates the implementation will cost $9 billion in the first year and $6 billion annually thereafter.

This move follows a surge in healthcare cyberattacks. Reports indicate that breaches grew by 102% from 2018 to 2023, with over 167 million individuals affected last year alone. High-profile incidents, like attacks on Ascension (ASND) and UnitedHealth (UNH), disrupted patient care and exposed sensitive data. These breaches compromise personal information, including mental health records, which are often exploited for blackmail or sold on the dark web.

Healthcare systems are particularly vulnerable due to outdated technology, the high value of medical records, and the operational urgency of hospitals, which make ransom payments more likely.

Cybersecurity companies like Palo Alto Networks (PANW), Crowdstrike (CRWD), and Fortinet (FTNT) offer solutions to combat these risks. Their services range from threat detection and network security to data protection. 

One more thing: Costco’s (COST) board is urging shareholders to reject a proposal aiming to end the company’s DEI program. This comes after a Supreme Court ruling cast doubt on the legality of some DEI practices, with critics claiming Costco’s initiatives risk discrimination lawsuits and financial loss. Costco says its DEI efforts are essential for fostering an inclusive culture that attracts talent, promotes innovation, and enhances customer satisfaction.


Disclosures:

As of writing, GOOG is a holding in Titan's Flagship strategy. OpenAI is a 5.07% holding in the ARK Venture fund.

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