🚀 Super Micro Computers Raises Free Money as Its Shares Skyrocket

🐺 Hi pack-mates,

This is Howling Markets, the daily newsletter that can be converted into powerful insights capable of helping you understand the financial markets on a daily basis!

Today we will be covering:

• Education: What Are Convertible Bonds? 📊

• Dogecoin Surges 80% Ahead of Bitcoin Halving 📈

• Super Micro Computer Raises Free Money as Its Shares Skyrocket 🚀

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What Are Convertible Bonds?

Convertible bonds are defined hybrid securities due to their unique characteristics that place them in a grey area between stocks, options and bonds.

At the beginning of their life cycle, convertible bonds behave exactly as ordinary bonds do. They are often issued through auctions by large companies, and they promise to pay periodic coupon payments over their life, plus the repayment of the principal at maturity.

However, as opposed to traditional bonds, convertible bonds offer their holders the possibility to transform the debt security into a predetermined number of stocks before the bond reaches expiration. Usually, the conversion is performed free-of-charge, however the conversion ratio, meaning the number of shares that the bonds can be converted into, incorporates a premium of usually 50%.

For example, let’s assume that the share of a company ABC you are interested in buying are priced at $20, but instead of buying 50 shares you decide to purchase a $1000 convertible bond. The catch with the convertible bond is that even if it can be immediately converted into shares, it includes a 50% premium on the shares’ price at the time of issuance, so the debt security could only be converted in $1000/($20*1.5)= 33.3 shares.

In these cases, the share price plus conversion premium, which in this case is $30 dollars, is considered the “at the money” share price of the contract, borrowing some technical terminology from options trading. If the share price surges above the ATM price, the convertible bond can be converted in more shares than what $1000 could buy at the time of the conversion.

So, from this point of view, these hybrid securities are very similar to options. However, the main difference between the two is that these bonds pay interest and even if you do not convert them, you can still earn money and receive principal back at maturity, unless the company goes bankrupt.

Convertible bonds are also very profitable from the company’s point of view because they can raise capital at an extremely low cost without even diluting their equity. Because the conversion option is an extremely valuable, and probably even extremely profitable, tool for the bond holders, the issuers are able to significantly decrease the periodic coupon payment of the security, sometimes even bringing it to zero.

Dogecoin surges 80% Ahead of Bitcoin Halving

Doge has been one of the most active memecoins of the entire crypto sphere, being active since 2014 and endorsed by very famous public figures such as Elon Musk.

Since the attempted rally to the $1 mark during the second half of 2021, the token has seen a significant drop in price thereafter, with the sole exception of a short-lived and not as powerful rally at the end of 2022.

Since then, the price has been moving sideways, but this week, something seemed to have changed. Dogecoin rallied almost 80% between last Sunday and the third of March, closing one of its best weeks in over one and a half years.

The crypto experts analyzing this move are attributing the root cause to the Bitcoin halving, expected to take place in April. Despite the fact that it will not directly affect every token, Bitcoin’s halving is projected to drive higher the price of Bitcoin, causing a surge in optimism surrounding all types of altcoins, as demonstrated by the drop in the funding rate spread.

Today’s Howling Question

And now, it is time for our howling question!

The AI boom that has helped Super Micro Computer achieve its extraordinary returns has also recently assisted Nvidia in breaching $2 trillion market capitalization, joining Apple, Google and a fourth company. Do you know which company I am talking about?

1. Meta

2. Microsoft

3. Amazon

4. Tesla

5. Ford

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

Super Micro Computers Raises Free Money as Its Shares Skyrocket

In recent years, thanks to the speculation surrounding generative AI and tech companies, convertible bonds became extremely popular once again as companies tried to raise “free money”.

The most relevant case is Super Micro Computer (Ticker: SMCI), a technology company that provides data center solutions with a pivotal role in the development of AI. Over the last 5 years the company has gained over 4,000%, and just between the 1^st of March 2023 and last Friday the company’s stocks surged over 800%. Additionally, thanks to its strong performance allowed it to become part of the S&P 500 during Friday’s session.

This amazing growth prompted more investments and even more growth, but together with all these expansionary moves, also the company’s need for working capital increased. Because of this, SMCI recently decided to issue convertible bonds with a conversion premium of 37.5%.

Interestingly, thanks to the optimistic forecasts regarding the company’s future, Super Micro Computer was able to issue $1.5 billion worth of hybrid securities with a zero-coupon payment, essentially borrowing free money, unless the shares do not appreciate by more than 37.5% by the end of the year, closing the year “in the money”.

Equity and Debt Markets Update

And now, our daily markets update!

Friday was a great day for the US stock market as it closed the 16^th positive week out of the last 18, an extraordinary market performance that wasn’t seen in the US since April 1971. The SPX gained an additional +0.8% and set its first all-time high above the 5,100 level.

On the other hand, it was a really bad day for the bond yields. The benchmark 10-year US government bond yield fell by -1.6%, breaching the support level that had been standing since the beginning of February.

Answer

The correct answer is 2) +21%.

Bitcoin has returned over +45%  since the start of month of February and just +20.86% in the first three days of this week!

Howl-Worthy Memes 😂

🐺 See you next time!

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