Last week, Nvidia Corp.'s (NVDA) earnings turned out to be the most important earnings report not only of this season, but possibly of the last several years.
Many have questioned whether artificial intelligence investing was ahead of itself, but last week's earnings seemed to quell that notion. Nvidia added more than$200 billion of market cap last week and is approaching $1 trillion. To put that gain in perspective, Intel Corp. (INTC) has a total market cap of $120 billion. Nvidia is on the cusp of adding two Intels to its market cap in a week.
I'm thinking out loud about AI, but see several possible scenarios:
- The blockchain hype. Turned out to be largely hype as Long Island Iced Tea changed its name to Long Blockchain in an effort to boost demand for its shares. Kodak, at least for a bit, got a pop on KODAKCoin, which seems to have been scrubbed from its website. I am not in this camp, but it does exist, though I suspect less so than it did at the start of last week.
- The dot.com bubble. There will be some winners and losers. I'm think I have one foot in this camp, but haven't figured out where to place that foot. com is just one example of a company that captured a huge market cap relative to any brick-and-mortar peers but ultimately failed to deliver. Global Crossing was caught in the overbuilding of fiber capacity, only to be proven correct down the road. And Amazon (AMZN) is just a massive success story.
- If AI is so transformational, why is the benefit accruing to so few companies? The S&P 500 equal weight and even the Nasdaq equal weight indexes trail the market cap weighted indexes by wide margins. My other foot is in this camp.
- If AI is going to be so helpful, why shouldn't we expect better earnings across the board from companies as they implement AI to become more efficient? Is it too early to project that? Is there doubt about how effective AI can be, away from the bandwagon need to use it? I'm thinking about this a lot as it could sway me into being a big bull if I really buy into the ability of AI to achieve even a fraction of what some claim it can do?
- What does this mean for employment? I'm not sure about this at all, but I have to admit to having some "Skynet" vibes from all of this, where unless we manage this technology well we could disrupt society and, in turn, the economy and markets.
While many will chase AI to start this week, I'm looking for signs that it is overplayed, at least near term, and I want to keep a close eye on the laggards.
In theory, the debt ceiling deal should provide a relief rally, but there really wasn't much fear in the markets despite non-stop media headlines about the debt ceiling and there is a chance that the Fed and Treasury will pull back on some excess liquidity they were providing ahead of the so-called "X date" to keep markets running smoothly. Again, a "fade the news" type of scenario.
The Fed may need to hike rate 25 basis points in either June or July given the economic data, but markets seem to be taking that in stride, which is bullish.
We get the full slate of jobs data this week. This is one area that has confounded me for the past year as the headline data seem so strong relative to any anecdotal data.
I'm going to get a little bit shorter to start this week, but I am going to offset that by buying some risk in the laggards, such as the Russell 2000 or the equal-weighted indexes.
The bond market seems likely to be range-bound for now and credit markets could do well. I think investment grade could outperform high yield as there has been a glut of new issuance in IG that should slow in June, while high yield could see a steady stream of new issues over the summer as that market is the most open for new issues that it has been in a long time.
