With interest rates at more than decade-highs, corporate finance chiefs are finding that money can indeed beget money.
Almost 1-in-10 non-financial companies in the S&P 500, or more than three dozen firms, earned more in interest income than they paid in debt expense during the first quarter, according to data compiled by Bloomberg based on members in the index that break out interest costs. While that number is largely unchanged from the prior-year period, the interest income reaped by those companies — a cohort that includes Alphabet Inc., Tesla Inc. and Johnson & Johnson — is up about 60%.
Corporate cash piles swelled during the pandemic, and now that benchmark interest rates are north of 5%, companies are reaping higher returns by investing in money-market funds, government securities and certificates of deposit. That additional income stream is expected to keep flowing in, with Federal Reserve officials signaling a willingness to keep rates higher for an extended period.
“Corporates are earning more money by holding cash,” said Mark Cabana, head of US rates strategy for Bank of America Corp.’s securities business. “Many companies are comfortable with where the economy is as well as with elevated cash levels, because they are getting a return for it.”
One standout is chipmaker Nvidia Corp., which reported $359 million in interest income for the first quarter, more than double what it earned during the prior-year period and enough to cover quarterly interest expense of $64 million. Nvidia also reaped enough interest income to cover its $98 million dividend — the only member of the S&P 500 to do so during the quarter.
For the companies that report higher interest income than interest spending, interest income leaped almost 60% to $6.9 billion, compared with the first quarter of 2023. Meanwhile, interest expense increased only 5% to $2.84 billion, the data show.
Nvidia’s cash hoard has ballooned in recent quarters, aided by a surge in demand for its chips that power artificial intelligence applications. The Santa Clara, California-based company now has more than $31.4 billion in cash, cash equivalents and short-term investments, up from $15.3 billion during the prior-year period.
Like some of its peers, Nvidia is invested in money-market funds, reporting over $5 billion in holdings for the past quarter. The company also owns US government debt, corporate bonds and certificates of deposits, it said in a filing. Nvidia declined to comment further.
Money-market fund holdings by institutional investors have grown by almost 20% since 2022, totaling about $3.63 trillion as of May 29. Corporates are believed to make up the lion’s share of those holdings, Cabana said.
With total holdings north of $6 trillion as of May 29, money-market funds have generated approximately $379 billion in returns over the past year, according to Crane Data LLC, which tracks money markets. “As the economy keeps growing and we enter the seasonally stronger second half of the year, corporate cash levels should keep growing,” said Peter Crane, president of Crane Data. There may be temporary declines, he said — for example around June 15, when many companies pay their taxes.
Treasury advisers say that more companies actively manage their cash investments, as opposed to relying on bank deposits, with many of them looking for instruments with a duration of less than a year.
“Companies are interested in ‘sweep’ programs that will automatically move excess cash into money-market funds,” said Dave Robertson, head of treasury solutions at PMC Treasury. They are also looking to move their cash to where it can generate the highest return, oftentimes the US.
Revvity Inc., a Waltham, Massachusetts-based life sciences and diagnostics company, has done this in recent quarters, Chief Financial Officer Max Krakowiak said. “We have made more of a concerted effort than in the past to move our excess cash to the US,” Krakowiak said.
Source: Corporate America is making tons of easy money just by parking piles of cash and watching
