“Some days simply lay on you like stones.” ― Patrick Rothfuss, The Slow Regard of Silent Things
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Good morning!
I know we are all well aware that our lives hang on the success and failure of Nvidia, but I’d like to ask: Do you feel this way even more deeply than usual because of its earnings last week?
In an all-hands meeting last Thursday, it seems like Chief Executive Jensen Huang understands the godlike role his company is playing right now.
“If we delivered a bad quarter, if we’re off by just a hair, if it just looked a little bit creaky, the whole world would’ve fallen apart,” he said. “There’s no question about that, OK? You should’ve seen some of the memes that are on the internet. Have you guys seen some of them? We’re basically holding the planet together — and it’s not untrue.”
Nvidia is about 7% of the S&P 500, the biggest weight. When it was $5 trillion in market value, it was worth more than the GDP of every country on the Earth except the U.S. and China. In its last quarter, it pumped out $57 billion in just sales, which alone is worth more than the GDP of Iceland or Nepal.
It’s big alright, but the question is: Has it become too big to fail yet?
Anxiety about not knowing whether there is an Nvidia put is my No. 1 potential explanation for what could have caused shares to reverse that quickly after gangbusters earnings on Friday.
To be sure, an Nvidia put is by no means a traditional put like the Fed put or the Trump put, which means that the Fed would ease monetary policy if stocks fell hard enough and that Trump would pare back his policies if they hurt the stock market enough. But Nvidia put doesn’t mean Nvidia will step in to prop any other company up if it’s failing but more so the idea that the White House would help Nvidia because it is the stock market. In that sense, it’s almost an extension of the Trump put.
We know White House officials don’t think OpenAI is too big to fail, given that they said “no federal bailout for AI.” I agree, because speaking purely from a product perspective, Google’s Gemini is catching up to OpenAI’s ChatGPT. Of course, that doesn’t consider the question of what happens to the fortunes of all the companies OpenAI has helped prop up like Oracle and AMD.
To me, Nvidia’s way more important than OpenAI, but still it’s unclear whether any failure of the company would cause or require the government to step in to backstop it like select banks during the financial crisis, or if the government would let it falter like it did for Pets.com during the dot-com pop.
I’m leaning more toward the first scenario because of what happened Friday. After a lackluster morning for Nvidia shares, which built on the day before’s flop, news reports broke at around 1:30 p.m. ET, citing anonymous rumors that the Trump team has internally floated the idea of selling Nvidia H200 chips. The reports put Nvidia shares into the green. Still, shares finished down 0.97%.
The ability to sell its chips that are twice as powerful as the ones being sold to China right now helped but it wasn’t enough. It’s the effort that counts more, though.
And every ounce of it counts, especially after what happened Thursday. The broader market partied with Nvidia, but when Nvidia stumbled, the broader market went with it. Nvidia fell more than 3%, while the S&P 500 lost 1.6%. The same analogy can be extended to its role in the AI mania, and Huang knows it all too well.
“If we delivered a bad quarter, it is evidence there’s an AI bubble. If we delivered a great quarter, we are fueling the AI bubble,” he said. Many investors say the AI craze and the jackpot quarterly performance can’t go on forever, especially if the tech giants keep leveraging each other in this investment cycle.
So that’s a tough spot to be in for Huang. But there’s always the next quarter though for Nvidia to blow our socks off. Maybe the White House will provide some help along the way. Who knows.
As a side note, I had discussed the pros and cons of using the word “put” with a few of you, and we settled on not using it. However, recent market events dictated that I make an exception.
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📧✍️Here’s what a reader commented📧✍️
Q: Do you have any memories to share from the past recessions?
A: I remember my 6th graders playing in a statewide investment contest called The Stock Market Game in the spring of 2009. One team loaded up on the names they knew like Netflix, Amazon, Apple, and Google and ended up finishing in the top ten against over 500 other teams. Sometimes it’s better to be young and inexperienced!
Catch up with FS Insight
We discuss the 5 possible factors that triggered the disappointing reversal for equity markets.
Nvidia posted strong results and equities should have had a strong day. But we still expect markets to soon find their footing.
Technical
Improvement in both market breadth and momentum will be necessary in the final six weeks of the year to start to regain confidence in risk assets, and a ratcheting up in percentage likelihood for a December FOMC rate cut should help Equity markets start to show some stabilisation.
Crypto
A new Solana proposal accelerates disinflation to a 1.5% terminal rate in three years, cuts roughly $3B in emissions over six years, addresses concerns around validator churn and network fragility, and could be a catalyst for SOL going forward.
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| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 11/25 | 8:30 AM | Sep PPI m/m | 0.3 | -0.1 |
| 11/25 | 8:30 AM | Sep Core PPI m/m | 0.2 | -0.1 |
| 11/25 | 9:00 AM | Sep Aug Case Shiller 20-City m/m | 0.1 | 0.19 |
| 11/25 | 10:00 AM | Nov Oct Conf Board Sentiment | 93.35 | 94.6 |
| 11/26 | 8:30 AM | Sep P Durable Gds Orders | 0.5 | 2.9 |
