With the exit of Biden from the November election, here's how the betting markets look now, blending the Biden/Harris nominee transition.
Bottom line: Last week, markets were beginning to price in a Trump win and possible Republican sweep. Value stocks benefitted on the outlook of more business friendly, pro-growth policies. Energy prices were lower, on Trump's vow to unlock domestic energy resources. And stocks related to the clean energy agenda went south.
Now with the change at the top of the Democrat ticket, and the expectations gap narrowing, we should expect the investor appetite to position for a major policy shift to moderate.
This should turn focus to the earnings season. And tomorrow we'll hear from two of the tech giants working on the frontier of generative AI: Alphabet (Google) and Tesla.
Remember, both are investing tens of billions of dollars in AI infrastructure. And they are developing the AI models, and products and services surrounding those models, that will power the Fourth Industrial Revolution.
So, this will be the first glimpse into the progression of generative AI, advancements made, and outlook, since we heard from Nvidia on their May earnings call (Nvidia is supplying the most advanced AI chips to power generative AI).
And on that May earnings call, remember Jensen Huang (Nvidia CEO) said they are now "poised for the next wave of growth" — that's after putting up another quarter of huge year-over-year triple-digit growth.
So, just when the market thought the growth wave might be moderating, he upped the ante, and announced another new chip. Moreover, he said they are in a "one-year rhythm" in chip development (i.e. a new chip every year).
This begs the question: How long will the cash-rich big tech oligopoly continue to outlay the massive capital necessary to keep up with the rapid innovation in computing power?
Keep in mind, from 2022 through this year, all of the AI barons are spending in the neighborhood of $100 billion in capex on AI infrastructure.
But if we look back at Microsoft's Q1 call, Satya Nadella said this is just the first wave, and they are building for the "second wave" of AI.
With all of the above in mind, there will be close scrutiny, in these earnings calls, on the outlook for continued investment in AI infrastructure — and the return on investment!
In addition to Alphabet and Tesla, IBM will report on Wednesday. IBM has the data center business, the generative AI model platform AND a consulting business to deliver generative AI to large organizations and governments. And we'll hear from Microsoft, Meta, Amazon and Apple next week.
From these earnings calls, we will be able to glean how Nvidia performed in the second quarter. They report next month.
