Nvidia Earnings and the SaaSpocalypse; the Latest on Sanctions and Tariffs and Reading the Fed.
As expected, Nvidia blew past expectations in its latest earnings report, showing AI infrastructure spending remains extremely strong. They reported data center revenue of $89 billion, up 117% from the prior year, showing demand for AI chips and systems has hit escape velocity. Notably, Jensen Huang was careful to say that it is not just demand that remains strong, “AI has reached its inflection point. It’s doing useful work. Its tokens are productive and profitable. Now, compute is revenue.”
Indeed, though the bar is now higher for companies with valuations like Nvidia’s, as the market’s muted reaction following the report showed. That said, it was welcome to see previously down-in-the-dumps SaaS (software as a service) companies like Salesforce report impressive earnings this week, showing that incumbents can use AI tools to their advantage. CEO Marc Benioff said, “This SaaSpocalypse narrative has been such nonsense.”
Turning to other wave-making headlines, negotiations between the U.S. and Canada ended after Commerce Secretary Howard Lutnick terminated talks in response to metal industry leaders arguing concessions made to Canadian producers were too extensive. With trade talks ending, a 50% tariff went into place as of Aug. 19 on roughly $20 billion worth of Canadian goods targeting everything from apparel to luggage to pet goods, wine and sporting equipment over alleged trade discrimination in auto, alcohol and dairy markets.
In response, Canadian Prime Minister Mark Carney announced “dollar for dollar” retaliatory tariffs would go into effect on Sept. 8. The levies on existing U.S. steel and aluminum products will be doubled to 50%, and other American-made goods such as furniture, clothing and apparel will have a new 50% tariff. Additionally, U.S. cheese, fish and appliances will be hit with a 25% tariff, while a range of U.S. machinery, farm equipment and industrial tools will face a 15% tariff. The new levies target about $20 billion worth of U.S. goods, or roughly 6% of Canada’s imports from the U.S. based on last year’s data.
Then, as the conflict in the Middle East enters its sixth month, U.S. Treasury Secretary Scott Bessent announced a new round of economic sanctions on Iran yesterday and threatened economic punishment against any country doing business with the country in what he called an “economic D-Day.”Bessent noted the sanctions focus on five of Iran’s most important industries, including digital assets, technology, gold, aviation and shipping. China, meanwhile, responded with a warning that Beijing will retaliate if Washington expands secondary sanctions. China is the number-one buyer of Iranian oil and has insisted it will keep buying the approximately 1.4 million barrels it imports per day (more than 80% of Iran’s shipped oil), despite U.S. sanctions.
Of course, the biggest headlines investors awaited this week came from newly minted Federal Reserve Chair Kevin Warsh at the Fed’s annual symposium in Jackson Hole, Wyoming. And, sticking to brand, he remained hard to read. He avoided committing either to forward guidance or offering details on the reaction function that would warrant an adjustment on rates. He did say that, “market prices show confidence that we will deliver price stability. And I can assure you they’re right.”
Stock markets were neither impressed nor rocked by the messaging, staying flat to down slightly for the most part in what appears to be end-of-summer malaise trading. Bond markets read the tea leaves that Warsh is more likely to raise rates than cut them, given his acknowledgement of inflation risks. This led to bond yields rising on the front end and falling on the long end, showing the bond market is a believer in Warsh’s reassurance that he has things under control.
We think you should likewise feel, despite the headlines and sometimes bombastic language that gets bandied about in public discourse, that financial markets are not on a collision course with disaster. That said, at these high levels, and before the fall and end of year is upon us, take the time to check in with us and discuss your plans. The biggest factor in your financial success is your plan, not the words and promises of Jensen Huang, Scott Bessent or Kevin Warsh.
Written by a human.