Is the AI boom a bubble?

One scoop to start: First Brands Group’s $1.1bn rescue loan faced a legal challenge from a Utah-based private asset-backed finance specialist, which emerged as the largest known creditor to the bankrupt US auto parts company. The judge approved the financing anyway.

And another scoop: An investor that has backed UK high street chains Gail’s and PizzaExpress has made a bid for Costa Coffee, which is being put up for sale with a roughly £2bn price tag by owner Coca-Cola.

And one more thing: Shawbrook is preparing to kick off its long awaited initial public offering, reviving plans to float the UK small business lender that were paused during market turmoil earlier this year.

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In today’s newsletter:

James Anderson on the bubbly AI boom

Why Berkshire’s buying OxyChem

An Apollo co-founder cooks up a kitchen deal

The top tech investor changing his tune on AI

James Anderson ignored conventional wisdom to bet big on Nvidia, Tesla and Amazon when they were still cheap, holding on to them for years and turning his then-employer Baillie Gifford into a titan of tech investing.

Now Europe’s star tech investor is warning that the artificial intelligence boom has echoes of the dotcom bubble.

It’s a dramatic turnaround from a man who just last year said Nvidia in the “most optimistic outcome” could have “a market cap of double-digit trillions”. (You can find his rationale for that statement here.)

In 22 years managing Baillie Gifford’s Scottish Mortgage Investment Trust, he achieved a total return of just over 1,300 per cent — compared to 318 per cent for the S&P 500.

This week Anderson drew attention to Nvidia’s planned $100bn investment in OpenAI, which has attracted criticism for its circularity.

The chipmaker plans to buy $100bn of OpenAI’s unlisted stock over the coming years. In return, OpenAI will spend more than $100bn on Nvidia’s chips, with some of the spending funded by Nvidia’s investment.

It’s all rather incestuous, as DD noted last week. Nvidia invests in one of its biggest customers, which buys Nvidia’s chips, and the two companies watch their valuations sail into the stratosphere.

What makes the arrangement even more lucrative for Nvidia is that the chipmaker trades at a revenue multiple of more than 30. So in theory, a $1bn rise in revenue translates to a more than $30bn rise in market cap.

But in the long term, the deal depends on exuberant demand for OpenAI’s services. And there are questions over how the huge data centres envisioned by the ChatGPT maker would be financed and powered.

For Anderson, who caveats that he’s still a “huge admirer” of Nvidia, it brings to mind the vendor financing arrangements of the late 1990s.

In those dotcom-era deals, telecoms equipment makers would borrow heavily to help their customers finance sprawling fibre optics and cable networks.

“The words ‘vendor financing’ do not carry nice reflections to somebody of my age,” Anderson told the FT’s Tim Bradshaw.

“It’s not quite like what many of the telecom suppliers were up to in 1999-2000 but it has certain rhymes to it.”

Warren Buffett kills two birds with one stone

Things haven’t gone great for Occidental Petroleum over the past few years. Luckily for the Houston-based group, Warren Buffett’s Berkshire Hathaway is coming to the rescue.

Buffett’s group is nearing a $10bn deal to buy Occidental’s petrochemicals division, OxyChem, in what would be the oil producer’s largest transaction in three years.

It’s an interesting deal given Buffett is already Occidental’s largest shareholder: Berkshire owns just over a quarter of the oil group’s outstanding shares.

Yet it makes sense when you consider the oil company’s balance sheet and the state of the petrochemicals sector today.

Occidental is nursing a heavy debt burden of $24bn, a consequence of its multibillion-dollar acquisitions of Anadarko Petroleum in 2019 and shale producer CrownRock in 2023. Neither of them have panned out as planned.

Meanwhile, petrochemicals groups are in a funk, with low demand, oversupply and tariffs hitting revenues. That means their valuations are at multiyear lows, allowing a savvy buyer to come in and snap them up on the cheap.

That’s exactly what Buffett seems to be doing, with the added benefit that a sale could give Occidental the money to trim its debt load and shore up its finances.

Of course, another transaction that’s staring him in the face is simply buying all of Occidental, given the oil and gas industry isn’t exactly booming at the moment.

Josh Harris is coming for your kitchen

Billionaire Josh Harris is best known as the co-founder of Apollo Global Management, one of Wall Street’s most fearsome private capital firms. He’s since broken away with his own new investment vehicle, 26North.

On Wednesday, DD’s Oliver Barnes scooped its latest planned venture: a controlling stake in a luxury cast-iron stove maker.

Harris is in talks to take control of the business behind Aga cookers, the stoves that are a staple of the British farmhouse kitchen.

Current owner Middleby is under pressure from activist investor Garden Investments at the moment. It’s planning to spin off its residential kitchen equipment unit into a joint venture with 26North, which will have a controlling stake.

Middleby will own the remainder of the business — just under 50 per cent of it — in a deal that values the joint venture at about $800mn.

As well as Aga, the unit is home to 21 luxury cooking equipment brands, such as Brava ovens, Masterbuilt grills and the prestige Viking and La Cornue cookers.

It’s a far cry from the high-octane deals Harris is known for, such as Apollo’s late-2000s $2bn investment in chemicals group LyondellBasell, which ultimately netted Apollo just shy of $10bn in profit.

But sometimes a slow burn is the way to start.

Job moves

Lazard has named Cyrille Cotte as managing director and head of insurance for European financial institutions. He joins from Evercore, where he was a partner.

JPMorgan has appointed Sunil Dhupelia as head of equity capital markets international. He is currently co-head of Asia Pacific ECM.

Apollo Global Management has named Jaycee Pribulsky as chief sustainability officer, succeeding Dave Stangis, who will become a senior adviser. She was previously CSO at Nike.

Jefferies has named Massimo Saletti as joint global head of real estate, gaming and lodging investment banking. He joins from JPMorgan, where he held the same role.

Smart reads

Epstein’s bankers Even after he went to prison, Jeffrey Epstein was able to maintain accounts with some of Wall Street’s biggest firms, the Wall Street Journal reports.

Japan’s activists Tokyo’s clubby business scene has been disrupted by a some big M&A fights over the past year. Now in a further sign of the shift, a big activist investor is re-emerging, Bloomberg writes.

Vegas woes Las Vegas has managed to reinvent itself over the decades and draw new generations to its desert attractions, The New York Times writes. Yet for the second time in five years, Sin City is up against it.

News round-up

BP’s new chair signals more asset sales and demands faster restructuring (FT)

Diversified Energy to switch its primary listing from London to New York (FT)

Meta to mine AI interactions to help target advertising (FT)

Deutsche Bank hit by London lawsuits from five former bankers (FT)

UK set to exempt newly-listed company shares from stamp duty (FT)

David Beckham’s media group pays out more than $80mn in dividends (FT)

IPO of data centre developer touting Trump ties surges on market debut (FT)

JPMorgan takes on Hargreaves Lansdown in UK with ‘DIY’ investment push (FT)

KKR prepares for private credit boom in Japan (FT)

Due Diligence is written by Arash Massoudi, Ivan Levingston, Ortenca Aliaj, Alexandra Heal and Robert Smith in London, James Fontanella-Khan, Sujeet Indap, Eric Platt, Antoine Gara, Amelia Pollard, Maria Heeter, Kaye Wiggins, Oliver Barnes, Jamie John and Hannah Pedone in New York, George Hammond and Tabby Kinder in San Francisco, Arjun Neil Alim in Hong Kong. Please send feedback to due.diligence@ft.com