Giddy optimism in AI is propelling tech stocks to unfathomable levels. NVDA broached the $5 trillion level, at one time sporting a capitalization of $5.3 trillion. Writing it differently, NVDA is worth more than the GDP of every country in the world for exception of the US and China. NVDA is worth about 17% of the US GDP and 25% of China’s output.
Wow! Is this realistic.
Talk about front loading a company [or sector]. Will revenues and profits accelerate at the pace values are suggesting? What will be the impact on productivity? Is the infrastructure in place , defined as energy source and transmission facilities?
Many times boomflation has been discussed, defined as inflationary growth that will help reduce the country’s debt burden. Based upon the massive values of AAPL, MSFT and NVDA boomflation the country is in this midst of economic description.
The three companies listed above are worth about $13.3 trillion. Revenues and profits [and economic output] must be expected to surge to support these valuations.
Changing topics, as widely expected, the FOMC lowered interest rates by 0.25% and stated it will stop shrinking its portfolio of assets on December 1 because of “stress in money markets intensified in recent days.” The vote was 10-2.
The Committee stated, “job gains have slowed and risks to employment rose in recent months.” The FOMC further characterized economic growth as “moderate” and inflation “has moved up since earlier in the year and remains somewhat elevated.”
Fed officials however are divided over how much more to ease. Several policymakers have cautioned against lowering borrowing costs too rapidly with inflation still running above the Fed’s 2% target.
Rate projections released last month showed 9 out 19 policymakers expected no more than one additional rate reduction this year, including seven who preferred no further moves in 2025.
The statement nodded to the fact that the ongoing government shutdown has limited their access to economic data increasing the odds that the FOMC will make a decision it will come to regret.
Treasuries were higher in yield across the curve as there were two dissents on either end of the spectrum. One wanted to lower rates by 0.5% while the other wanted no change. Selling accelerated in the bond market following Powell’s comment that a rate cut in December is “far from a foregone conclusion.”
The market has been pricing in another rate reduction, and it is widely accepted that this was not a casual remark from the Fed Chairman.
After the close META, GOOG and MSFT posted results. META’s earnings were “mixed” sending shares lower by 9% as the company warned that AI spending will be “notably” larger in 2026 than 2025. GOOG exceeded expectations causing shares to advance by 5%. And MSFT beat forecasts, but it was not enough sending shares lower by 3%. The three companies spend $78 billion in capital expenditures last quarter, up 89% from the year earlier according to Bloomberg.
Will this spending increase revenues and profits?
Tonight both AAPL and AMZN post earnings.
Last night the foreign markets were down. London was down 0.48%, Paris down 0.67% and Frankfurt down 0.14%. China was down 0.73%, Japan up 0.04% and Hang Seng down 0.24%.
Futures are flat. The 10-year is off 12/32 ot yield 4.10%.
