Earnings Announcement Season Ends with Nvidia’s Grand Finale
Introduction:
As the second-quarter earnings announcement season comes to a close, all eyes are on Nvidia, which is set to deliver its highly anticipated earnings report today after market close. Analysts have revised their consensus earnings estimate for Nvidia up by 10.3%, indicating a potential earnings surprise. This positive sentiment has contributed to the impressive rebound in the stock market following the recent Japanese carry trade sell-off.
Democratic National Convention and Tax Hike Plans:
Last week, the Democratic National Convention (DNC) took center stage, with Kamala Harris making her stance on taxes clear. Harris proposed raising taxes on corporations from 21% to 28%, as well as increasing taxes on capital gains and dividend income to a maximum of 44.6%. In addition, she called for a higher tax of 4% on stock buybacks and a 32% increase in Medicare taxes, from 3.8% to 5.0%. Furthermore, her plans included higher excise taxes on electricity and energy, which could potentially lead to increased utility and gasoline prices. However, the question remains whether Americans will be willing to accept these tax increases.
Fed Signals Rate Cuts:
Federal Reserve Chairman Jerome Powell added to the economic discussion last week during the Kansas City Fed conference at Jackson Hole. He hinted at the possibility of key interest rate cuts on September 18th, stating that “the time has come for policy to adjust.” Powell emphasized that the labor market slowdown was evident and that unemployment concerns were outweighing inflation concerns. He further stated, “We do not seek or welcome further cooling in labor market conditions.” This signals a shift in focus from inflation to job market indicators for the Fed.
Nvidia’s Blackwell GB200 GPUs and Monopoly Status:
In terms of market news, Nvidia’s guidance on the delivery of its Blackwell GB200 GPUs and order backlog is of utmost importance. Reports suggest that Nvidia is experiencing delays in the production of its Blackwell GB200 GPUs due to a glitch with the Taiwan Semiconductor Manufacturing Company (TSMC). The significance lies in the fact that major players like Google, Meta, and Microsoft have made substantial investments in Nvidia’s GPUs for the escalating AI arms race. For example, Google has placed an order worth over $10 billion for more than 400,000 GB200 chips. Nvidia’s dominance in the market, coupled with its commitment to upgrading its AI chipsets annually until the end of the decade, solidifies its position as an effective monopoly.
Quantum Computing and Regenerative AI:
Looking ahead, as Nvidia’s AI chips approach the atomic level, there may be limitations in terms of further speed enhancements through traditional means. This paves the way for the next phase of AI calculation acceleration, which is Quantum computing. Nvidia is already preparing for this future shift by developing a Quantum Cloud Simulator. It is crucial to note that Nvidia’s competitors are primarily focused on lower-grade AI chipsets, while Nvidia continues to dominate the domain of Regenerative AI or machine learning. The capital and resources required for new competitors to emerge and effectively challenge Nvidia’s monopoly seem prohibitive. This pattern aligns with the author’s historical investment gains from monopolies that emerged before competition caught up.
Trump’s Electricity Generation Plans:
In the political arena, President Donald Trump aims to double electricity generation in the U.S. to support the growing demand for power-hungry cloud computing centers. To achieve this, Trump intends to utilize cheap U.S. natural gas, which is currently being flared and wasted. By redirecting natural gas towards electricity generation, Trump hopes to optimize its use. If Trump secures Pennsylvania and wins the presidency, cloud computing-related stocks such as CrowdStrike Holdings, Eaton, Emcor, Nutanix, Parsons, Quanta Services, Super Micro Computer, and Vertiv Holdings are expected to thrive.
Fed’s Focus on the Job Market:
With inflation under control, the Federal Reserve is now shifting its attention to the job market. Over the past 15 months, the unemployment rate has risen from 3.4% to 4.3%. Speculation about a potential 50 basis point cut by the Federal Open Market Committee (FOMC) persists, although it would require a dire August payroll report and a surge in the unemployment rate to warrant such a significant cut. The author anticipates a 25-basis point cut by the FOMC, but this could change based on economic and unemployment data.
Crude Oil Prices and Seasonal Demand:
Crude oil prices have seen a 7% increase this year. Recent fighting between Israel and Hezbollah, along with Russia’s struggling crude oil exports, have contributed to these price hikes. However, as seasonal demand drops after Labor Day weekend, crude oil prices may moderate in September.
Conclusion:
With Nvidia’s earnings announcement today, the second-quarter earnings season comes to an exciting close. The company’s guidance on its Blackwell GB200 GPUs and order backlog will be crucial for investors. As a dominant player in the AI chip market, Nvidia’s monopoly status and commitment to innovation make it a promising long-term investment. Meanwhile, political developments, such as Kamala Harris’ tax hike proposals and Trump’s plans for electricity generation, will continue to shape the market. The Federal Reserve’s shift in focus toward the job market and the fluctuating crude oil prices further contribute to the current economic landscape. Overall, this week holds positive prospects, fueled by Nvidia’s grand finale, the July Personal Consumption Expenditure (PCE) announcement, and the rally leading up to Labor Day weekend.
