Nvidia Beware: Bankruptcy at Tesla Rival Fisker Highlights This Risk for Chip Makers. And 4 Other Things to Know Today.

It’s hard being an EV company and nowadays the challenges are taking their toll. Demand is weakening, competition is tough, prices are falling. On top of that, EVs are in the center of trade tensions between China, the U.S., and Europe.

Tesla, arguably, is only able to keep its premium valuation because of Elon Musk’s ambitions to take the company beyond its core EV business. He wants the company to lead the way in artificial intelligence software and robots, not just cars.

But semiconductors have now replaced EVs as the darling of the market, and things seem to be going great for the chip makers. Nvidia recently joined Apple and

Microsoft

in the $3 trillion club. And, similar to Tesla a few years ago, its success has inspired a lot of would-be rivals to jump into the fray.

For now, that’s no big deal because demand is swamping supply. Nevertheless, competition is heating up. Geopolitical problems are also likely to get worse before they get better.

In a few years chip makers may lose their luster and look a lot like today’s EV makers. That’s not to say a market leader like Nvidia will fall off its perch—Tesla is still managing to outperform many of its rivals. But sectors can fall in and out of favor. Nvidia shareholders should beware of tougher times ahead.

—Brian Swint

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Supreme Court Will Hear Chip Maker Shareholder Lawsuit

The Supreme Court is adding

Nvidia
’s

appeal of a shareholder lawsuit to its calendar for next term, giving the AI chip maker the chance to argue that 1995 rules enacted by Congress to limit frivolous lawsuits should apply in this case because the shareholders failed to meet threshold legal requirements.

• A win for Nvidia could help it avoid getting bogged down in similar shareholder lawsuits, but a loss could make it and other companies more vulnerable to shareholder claims.
• Two years ago, Nvidia paid $5.5 million to settle with the Securities and Exchange Commission on inadequate disclosures. The SEC settlement didn’t prove knowledge or recklessness.
• The class-action case was brought by Swedish investment firm E. Ohman J:or Fonder AB in 2018 claiming Nvidia underreported its revenue derived from sales to the crypto industry by more than $1.1 billion dollars.
• A federal judge dismissed the case in 2021 but the Ninth Circuit Court of Appeals in California, where Nvidia is based, revived it, saying the shareholders who filed the case made adequate arguments to allow it to move forward.

What’s Next: Nvidia declined request for comment. Its lawyers argue the Ninth Circuit’s decision could open the door to speculative litigation. E. Ohman J:or Fonder AB didn’t respond to a request for comment. The Supreme Court’s next term starts in October.

—Anita Hamilton and Liz Moyer

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Adobe Targeted by FTC Over Hidden Cancellation Fees

Adobe

has become the Biden administration’s latest target in its effort to eliminate fees and other company policies it deems unfriendly to consumers. The Federal Trade Commission is suing the software maker, saying it charges hidden cancellation fees and makes it too difficult to end subscriptions.

• The FTC said Adobe enrolls subscribers in its most lucrative plan without clearly disclosing they are agreeing to yearlong commitments with hefty early termination fees, then makes canceling subscriptions onerous and complicated. The Justice Department filed the case in a Northern California federal court.
• The FTC complaint names Adobe and its Senior Vice President Maninder Sawhney and President of Digital Media David Wadhwani. Consumers have complained to the FTC and the Better Business Bureau about being unaware of early termination fees, the FTC said.
• Before 2012, consumers paid Adobe a one-time fee to use platforms such as Acrobat, Photoshop, and Illustrator indefinitely. Since switching to a subscription model, Adobe’s subscription revenue has nearly doubled, from $7.71 billion in 2019 to $14.22 billion in 2023, the FTC said.
• Adobe on Dec. 18 ended its acquisition agreement with design tools maker Figma, anticipating issues getting approvals from the European Commission and U.K. Competition and Markets Authority. On June 14, Adobe reported stronger-than-expected earnings and revenue for its second quarter and raised its full-year fiscal guidance.

What’s Next: Adobe’s General Counsel and Chief Trust Officer Dana Rao said the company will refute the FTC’s claims in court. Rao said subscriptions are convenient and flexible, that it is transparent about its subscription agreements and has a simple cancellation process.

—Janet H. Cho and Angela Palumbo

***

GameStop CEO Says Focus is on Cost-Cutting, Profitability

GameStop

CEO Ryan Cohen said the retailer plans to keep cutting costs, scale back its stores, and focus on profitability, but was light on specifics during the company’s rescheduled annual meeting on Monday. GameStop raised $2.14 billion in a stock sale last week.

• Cohen spoke briefly and touted GameStop’s balance sheet, which has been bolstered by a series of stock sales since shares soared during the January 2021 meme stock rally. GameStop sold 45 million shares in May, and 75 million shares in June, grossing $3 billion.
• The meeting had to be rescheduled from last week after too many people trying to listen in crashed the livestream. Shareholders elected GameStop’s board nominees and approved a compensation proposal. But the meeting was relatively uneventful, with the question and answer portion lasting just 10 minutes, MarketWatch reported.
• Keith Gill, the investor who became a Reddit folk hero for his bullish bets on GameStop before the January 2021 meme frenzy, helped reignite interest in those companies with posts from his Roaring Kitty account in May. He owned more than nine million shares on June 9.
• The recent interest in GameStop hasn’t lifted fellow meme stocks, however. Cinema chain

  AMC Entertainment
  ,

  another meme stock, is down 20% this year and was down on Monday despite a stronger-than-expected weekend box office sales for

  Walt Disney

  Pixar’s Inside Out 2.

What’s Next: Cohen said having a strong balance sheet in times of economic uncertainty is a strategic advantage. But since he took over GameStop, the

Chewy

co-founder has gained a reputation for not giving away much information. The company hasn’t provided a full-year financial outlook in years.

—Connor Smith, Rupert Steiner, and Janet H. Cho

***

Heat Wave Will Smother The Midwest, Northeast This Week

A heat wave this week that will blanket the Midwest and Northeast has companies ranging from utilities to airlines on alert for potential disruptions. The National Weather Service’s HeatRisk map shows “extreme heat” with little overnight relief from Missouri to Maine by Thursday.

• Ohio utility

  FirstEnergy

  said it was prepared to handle increased electricity demand and has been making equipment inspections to detect potential problems. It is checking on power lines using helicopters and thermo-vision cameras.

• Airlines can also be affected by extreme heat, forcing them to carry less weight in either fuel, bags, or passengers or a combination of that, leading to potential delays that can have ripple effects throughout the system, the Washington Post reported.
• The hottest temperatures so far this year will slam much of the Midwest to the Northeast, with widespread daily records likely and heat index readings of 100 to 105 degrees in many locations, NWS said. Record warm nights will prevent natural cooling and increase the heat danger.
• Chicago, New York, Pittsburgh, and Washington, D.C., could see triple digit temperatures later this week, while others could see temperatures in the high 90s. Last summer was the hottest summer in 2,000 years.

What’s Next: The National Hurricane Center forecast moderate coastal flooding and heavy rainfall along the Texas coast and Northeastern Mexico starting today from a Potential Tropical Cyclone in the Gulf of Mexico that could become Albert, the first named tropical cyclone of this hurricane season.

—Janet H. Cho

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Be sure to join this month’s Barron’s Daily virtual stock exchange challenge and show us your stuff.

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Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and at the end of the challenge the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.

Are you ready to compete? Join the challenge and pick your stocks here.

***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner