00:00 Speaker A
Big swings today, Ross. You know, we get Nvidia. It’s a strong earnings report. We pop, but then we roll over. Now we got red all over the place. Help us make sense of it Ross. I know some folks are are pointing the crypto market, but what do you see?
00:27 Ross
Yeah, I’ll highlight three things quickly. I think number one, um, demand for Nvidia chips doesn’t answer the big question about this AI rally, which is what is the return on investment for the the firms buying the chips, right? That Nvidia has such strong demand shouldn’t be a surprise. The question is where’s the killer app, the productivity enhancements? Is there going to be good ROI from the hyperscalers and all the folks downstream spending on the Nvidia chips. I’m not sure why Nvidia is down so much. I think it it it looks, you know, pretty pretty attractive here, but, um, it doesn’t answer the big question about AI. Number two, um, I I I think the market is worried the Fed is, uh, trudging towards a policy mistake, that they’re going to hold firm in December, that it’s going to be a hawkish hold, and that the labor market is deteriorating, um, in a way that requires cuts, or at least for the Fed to get back to a neutral policy stance. There’s no real upside pressure from inflation, tariffs have improved inflationary, and you’ve even got, uh, this working paper making the rounds from the San Francisco Fed that shows, um, tariffs have been deflationary in the past. And then third, you get downside momentum, you get volatility spiking. It it starts to trigger some of the algorithmic trading, some of the wall hedging strategies, and it’s hard to kind of break out of that cycle, um, without a cleaner bottom, without a real capitulation. So, I think we could have a little more downside pressure here, but I view it against the backdrop of a bull market where these sorts of dips are buyable until proven otherwise.
02:08 Speaker A
Let me go back to what you said about Nvidia Ross because that’s interesting. So, if that core AI question as you put it isn’t answered by that that print, what are the investment implications of that, Ross? You know, how does that sort of shape how and where I want to put money to work?
02:30 Ross
Well, look, I mean, we’ve all heard the the analogy about, you know, in a gold rush, you want to own the the the seller of the picks and shovels, right? That’s Nvidia. So we know that there’s incredible demand for their product and for the company you know, for any company that provides products that contribute to building out the infrastructure, right? The question is whether the hyperscalers and even downstream of the hyperscalers pick a, uh, you know, a random staples company. Are there productivity enhancements coming from all of this spending on things like Nvidia chips? We know the demand is there, the question is the return on investment. And particularly at a time where the market is getting uneasy with how that investment is being funded. Um, for years the Mag 7 were, um, you know, cash heavy, uh, debt light. They’re starting to reverse that trend and and, you know, borrow to to make these investments. So, I we might be years away from seeing the results of all this spending, whether there’s a killer app or productivity enhancements down the line. It took really decades to to get there for the and the internet boom, uh in the late 90s. But that’s the big question at the heart of this anxiety. And the Nvidia print while great doesn’t go a long way to answering that.