Exaggerated
US stocks ended mixed on Wednesday as investors weighed evolving trade policies and recent strength in the tech sector.
The S&P 500 added 0.1% after erasing its losses for the year, while the Dow slipped 89 points and the Nasdaq 100 rose 0.7%, boosted by gains in major chipmakers.
The broader AI rally fueled a 17% surge in Super Micro Computer, helping lift overall market sentiment.
Optimism was further supported by a temporary U.S.-China tariff reduction, raising hopes for a broader trade agreement despite ongoing uncertainties.
Meanwhile, President Trump’s Middle East visit led to several new business deals, including a Boeing-Qatar Airways agreement and AI initiatives in the Gulf.
Let's talk about Nvidia.
Its demise has been greatly exaggerated. Among the big news coming out of the Middle East, in the past 36-hours, this headline:
Keep in mind, Nvidia's most advanced Blackwell chips go for around $30k a piece.
A million Blackwell chips would imply a $30 billion deal for Nvidia.
Nvidia has net income margins in the mid-50s (percent). So this deal, over the next two years, would add more than $16 billion in net income for Nvidia.
Apply a 25x P/E to that and we get $400 billion of market cap gains associated with this deal. As you can see in the chart below, the market has already priced in most of that - the stock is up 10% in just the past 36 hours.
You can also see in this chart, the significance of "tariff relief" on the stock of the most important company in the world.
With all of this in mind, we get Nvidia earnings on May 28th. And remember, the headwind for Nvidia has been supply, not demand. So the UAE just adds to the demand backlog.
However new capacity for its most advanced chips has recently started production in Arizona, and production in Texas is due in 12-15 months. That will add to global chipmaking capacity which means Nvidia will be able to fulfill more of the demand backlog.
Going into Nvidia's earnings back in February, we looked at this next chart and talked about the significance of the trendline that represents the generative AI-theme, from the "ChatGPT moment."
This line came in around $80, and the pre-split level for Nvidia was $95.
And here's an updated chart. As you can see, this line held, and the AI-theme is well intact.
