ResearchThree Things (2/21)

Three Things (2/21)

Feb 21, 2024

Credit card M&A

Capital One agreed to buy Discover Financial in a $35 billion all-stock deal to create the largest US credit card company by loan volume. The purchase of Discover ranks as the biggest merger globally this year and brings together two storied consumer-finance brands. Historically, Capital One has had to rely on Visa or Mastercard to issue its credit cards but the acquisition allows the company to be able to cut out those two middle men and have more control over the prices merchants are charged each time a consumer swipes one of the firm’s cards at checkout. 

Capital One becomes a giant vertically integrated consumer financial services company when this transaction closes, less analogous to Visa and Mastercard and more so to American Express. Given Discover is a three-party network and sits atop an underlying bank, the merger gives Capital One interesting product opportunities moving forward. Maybe the most surprising? Capital One would leapfrog others to become the sixth largest bank by assets in the country.

Nvidia earnings

With few economic events on the calendar expected to severely sway investor sentiment, the earnings report from Nvidia on Wednesday will take center stage in the week ahead. The chip maker's lead in AI has propelled it to the third-highest market cap in the world, only trailing Apple and Microsoft and the earnings will provide color on the recent rally's ability to continue.

Based on the company’s forecast for the final quarter of the year, results should show nearly $59 billion in revenue for the fiscal year ended in January—more than double what Nvidia generated in the previous year. For context, none of Nvidia’s megacap tech peers—Apple, Microsoft, Amazon, Google, and Facebook – ever expanded revenue that fast in a single year from a similar starting point. The bar is extremely high and results may dictate investor appetite over the coming months.

Amazon joins the Dow

Amazon will replace Walgreens in the Dow Jones Industrial Average, S&P announced on Tuesday. “Reflecting the evolving nature of the American economy, this change will increase consumer retail exposure as well as other business areas in the DJIA,” S&P Dow Jones Indices said in a statement. The Dow Jones index, structured as a price weighted index, noted that the change was in part prompted by the upcoming three-to-one stock split from Walmart.

Although the index is much smaller in size than its S&P 500 peer, the update should welcome an entire new cohort of forced buyers to the table. Amazon joins Boeing and Salesforce as the only non-dividend paying stocks in the index and the news may be a short-term tailwind for a stock that has seen a nice start to the year.


Disclosures:

As of writing, AMZN, MA, V, NVDA, GOOG, AAPL, META, SPGI and MSFT are holdings in Titan's Flagship strategy.

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