Nvidia (pronounced en-VID-ee-uh) has been a major catalyst for the AI trade since Nov 2022 when MSFT bought into Chat GPT.
Recently, many market participants have focused on other aspects of the AI compared to the majority supplier of GPUs to the capital cost of building the infrastructure supporting the buildout. To be clear, there is more confusion now about AI impact of jobs, GDP and profitability. That typically does not set up well for the bulls. We are a very long-term BULL on AI impact on the economy and the world. But there will be huge known-unknowns to deal with along the way. NVDA has had more than a five times and a three times return of the S&P 500 and technology in general since MSFT invested the US$10 billion. MSFT’s first investment was in 2019 at around US$1 billion.
The added confusion around tariffs certainly do not help the bull case either, but as we have seen with Trump’s ad hoc discretion on tariff policy, the rates can change daily, and deals can be done. The tariff issues are not likely to derail markets like we saw in 2024. A strong economy is in the White House (and Congress) best interest heading into the mid-term elections this year.
President Trump claims the US economy in 2025 was the “best ever.” No doubt, he will wave that banner during the SOTU on Tuesday night. Last year, the US economy added less than 20,000 jobs per month and is currently estimated to grow at a little over two per cent while running a deficit (as a percentage of nominal GDP) of 5.25 per cent. I would comment this is closer to the worst ever! The current CBO estimate is for this deficit to continue as far as the eye can see. Just about every government in the world has deficit issues. We have seen over the years that deficit growth helps the economy grow and it will matter for markets only if inflation cannot be controlled, as we saw with the inflation spike post COVID and the rapid rate rises that we saw in 2022 to kill it.
The VERY BULLISH thing about AI and technology in general is the disinflationary force it’s had on the world for decades now. We do worry about job displacement and a significant job/skill mismatch in the future. Subject for another day.
We expect NVDA to paint a very bullish picture. The question of the week: Will it be enough to offset the peak CAPEX concerns and how that’s being funded?
