Premarket Stocks: Market mania has fueled a SPAC boom. This is who is at risk

Sign of the Times: One of the most striking indicators of market mania has been the explosion of specialty acquisition companies, or SPACs. So-called “blank check” firms, which allow investors to back sponsors who are then on the hunt for a private entity to go public, raised tens of billions of dollars in 2021, an increase of more than 2,000% compared to 2020.

More and more people are raising the alarm. US regulators have warned that investors should not support SPACs just because they have celebrities associated with them. Meanwhile, short sellers’ interest in SPACs has risen, according to data from S3 Partners, indicating that a growing number of traders think the excitement is exaggerated and that stock prices are destined to decline.

Step Back: When the SPAC frenzy has gotten out of hand, who pays the price? Experts warn that not everyone will be a winner – and some private investors who get swept up in the madness could get hurt.

“The time for quick money feels like it’s over,” said Atwater.

One concern is that there is simply too much SPAC money to pursue a limited number of solid takeover goals. That could force owners to acquire less mature businesses that may not meet high growth expectations, or to enter into deals that are less profitable.

“An enormous number of SPACs are created every day,” said Will Braeutigam, a partner and SPAC leader at Deloitte. “With so many SPAC sponsors bidding on the same companies, the upside that you think is there may not be there.”

Guillermo Baygual, co-head of mergers and acquisitions for Europe, Middle East and Africa at JPMorgan Chase, notes that not all SPACs are created equal. He believes this corner of the market “will become a more professional asset class over time,” as investors differentiate between companies with a proven track record and those created to take advantage of the moment.

In the meantime, everyday investors who have had no discernment could hold the bag, according to Atwater. He pointed to a rush to buy shares of SPACs before takeover targets are even announced.

You would think investors would wait to see some [they] buy it, ”Atwater said.

If no target is identified, initial investors will get back their default $ 10 per share, Atwater explained. But avid investors who want to get ahead on a deal and pay $ 20, $ 30 or $ 40 a share in the open market are making bets that are purely speculative.

Some SPACs will end up as success stories. But Baygual warned that not all are certain. “Investors should make their investment decisions based on fundamentals,” he said.

Investors cheer when Intel unveils a turnaround plan

The latest: Intel has unveiled several major initiatives, including a $ 20 billion investment in two new US chip-making facilities.

The moves mark the company’s attempt to reaffirm its position as the undisputed leader of the semiconductor industry after several difficult years, my CNN Business colleague Clare Duffy reports.

“We are heading into a new era of innovation and product leadership at Intel,” Gelsinger said in a statement.

Remember: Gelsinger acquired a company that faced numerous challenges, including unprecedented competition from Apple and an activist shareholder demanding change. Intel has also experienced major delays in producing next-generation chips, which allowed TSMC and Samsung to take the lead.

In the past two years, shares of Intel are up just over 19%, compared to the nearly 114% growth in the PHLX Semiconductor Index that tracks the broader sector.

Outlook: The new strategy could help solve many of those problems. Intel, which is perfecting its next-generation 7-nanometer chip, plans to rethink its manufacturing process and rely more on outsourcing. At the same time, it will put more money into its Arizona campus, creating thousands of jobs.

Investor Insight: Intel’s stock shot up nearly 4% in premarket trading, while competitor AMD’s stock is lower. Shares of TSMC, the world’s largest contract chipmaker, plummeted 3% in Taipei on Wednesday.

GameStop stocks are tumbling after disappointing results

GameStop’s shares have soared this year thanks to the enthusiasm generated on social media as budding traders bet the struggling video game retailer could make a lucrative shift to digital that would boost sales.

Signs of Change: Global ecommerce sales were up 175%, representing 34% of the company’s total net sales during the quarter. In the same period last year, e-commerce accounted for only 12% of total sales.

“Our focus in 2021 will be on improving our e-commerce and customer experience, increasing our speed of delivery, providing superior customer service and expanding our catalog,” CEO George Sherman said in a statement.

But will that be enough to spark investor interest? Shares of the company initially rose more than 5% in out-of-hours trading, but were the last to fall 14%. It closed at $ 181.75 on Tuesday – down 9% since the start of the week, but still close to 865% for the year.

Next one

General Mills reports results before US markets open.

Also today: