Posts tagged ‘big tech’
Mideast War an Investor Bore as Markets Soar
If I told you at the beginning of the year that the U.S. would bomb key nuclear sites in Iran, would you have guessed that Middle East stability would follow—and that global financial markets would soar to record highs? Personally, I wouldn’t have bet on that outcome. But that’s exactly what happened last month. While geopolitical dynamics remain fluid, markets shrugged off the chaos. The S&P 500 rallied +5.0%, the Dow Jones Industrial Average climbed +4.3%, and the NASDAQ catapulted +6.6%, powered largely by artificial intelligence stocks like NVIDIA Corp., which surged +16.9% for the month to a market value of $3.9 trillion (more on AI below). This is an important reminder that trading off of news headlines is a fool’s errand.
Economy Resilient Despite Tariffs and Geopolitical Turmoil
Source: Calafia Beach Pundit
Credit Default Swaps (CDS) act as insurance contracts that protect investors against corporate debt defaults. During financial stress—like the 2008 crisis or the COVID crash in 2020—CDS prices surge as investors seek protection. Today, however, CDS prices are falling across both high-yield (junk bonds) and investment-grade (Blue Chip) debt. As seen in the chart above, the cost to insure corporate bonds has declined steadily over the past two years. This signals bond investors aren’t worried about a recession or a wave of defaults, despite tariff policy uncertainty, geopolitical risk, and modest GDP growth.
Inflation Tame as Tariffs Loom
President Trump has repeatedly criticized Fed Chair Jerome Powell for not cutting interest rates, calling him everything from a “dummy” to a “major loser” and a “stupid person” to a “numbskull”. While the name-calling is colorful, the economic pressure is real: U.S. GDP contracted -0.5% in Q1 2025. Powell, however, wants to see the full impact of upcoming tariffs before making a move. . A new tariff deadline looms on July 9th, and the market is anxiously awaiting clarity. But even if tariffs are implemented, many economists believe the inflationary impact will be temporary—what’s known as a one-time price shock.
Source: Calafia Beach Pundit
The Fed’s preferred inflation gauge—the Personal Consumption Expenditure (PCE) index—has been easing and is now near the 2% target (see chart above). With inflation cooling, Trump’s case for rate cuts gains credibility. Still, the Fed appears in no rush. It will take time to understand the lasting effects of the tariff rollout.
AI Wave Fueling Markets
For a generation, the semiconductor revolution has quietly powered innovation, guided by Moore’s Law—the principle that chip performance doubles roughly every two years (see my article The Traitorous 8). Sixty years after Gordon Moore wrote his seminal article, “Cramming More Components onto Integrated Circuits”, the power of software is catching up. NVIDIA’s Grace Blackwell GB200 chip contains an astronomical 208 billion transistors, supercharging AI software models like ChatGPT.
The AI revolution is fueling trillions in global investment and rapidly transforming industries – from data centers and self-driving cars to robotics and drug discovery. It’s important to realize that this AI arms race is not just occurring in the United States. AI investment spending extends way beyond Silicon Valley to countries like Saudi Arabia, Singapore, and China.
The AI boom is not a U.S.-only phenomenon. Countries like China, Saudi Arabia, and Singapore are pouring capital into AI, creating a global arms race in tech. In the U.S., the four biggest hyperscalers—Amazon, Microsoft, Google, and Meta—are projected to spend over $300 billion on capital expenditures in 2025 alone (see chart below).
To illustrate the scale: Amazon is forecasted to spend more than $100 billion in CapEx this year. For context, that’s 40% more than the company spent over the entire 2000–2020 period combined.
Source: The Financial Times
The Stargate Initiative: AI Infrastructure on a Galactic Scale
A prime example of the AI gold rush is the $500 billion Stargate initiative, with Phase 1 already underway in Abilene, Texas (see rendering below). The initial construction includes two buildings totaling 1,000,000 square feet. Ultimately, the full project will cove about 1,000 acres and be powered by an on-site natural gas facility generating 360 megawatts—enough to support 300,000 homes.
A huge portion of the project costs are dedicated to the budget for NVIDIA super chips. Oracle Corp. has committed $40 billion to purchase 400,000 of NVIDIA’s GB200 chips, making this project a centerpiece of the global AI infrastructure boom. Just this week, Oracle also announced a new $30 billion cloud deal, which will soak up a good chunk of the data center supply created by the database and enterprise software company.
Source: CoStar
The Big Picture: Volatility and Opportunity
There’s no shortage of risk—geopolitics, inflation, Fed uncertainty, tariffs. But the economy is showing surprising resilience. If tariff clarity improves, interest rate cuts materialize, and AI capital spending accelerates, a “boring” market could rapidly turn into a soaring one.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (July 1, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on the IC Contact page.
Another Hot Month, Another Fresh Record
Summer is coming to a close, but the weather is not the only thing that remains hot. The stock market has been scorching hot as well. Both the S&P 500 and Dow Jones Industrial Average blazed to all-time record highs last month. In fact, both of these indexes have risen seven out of eight months this year, including gains in the last four consecutive months. More specifically, the S&P 500 was up +2.8% last month and +18.4% this year, while the Dow Jones has advanced +1.8% for the month and +10.3% for the year.
How can this surging bull market be in existence while undergoing a war between Russia and Ukraine; military conflict in Gaza; a nasty Japanese Yen Carry Trade unwind; a highly divisive upcoming presidential election; a weakening economy; and rising unemployment (see chart below)?
Source: Calafia Beach Pundit
For all investors and traders, there is never a shortage of issues to worry about, even when times are good. However, despite the long laundry list of concerns, there are plenty of opposing tailwinds supporting the upswell in stock prices, starting with growing record corporate profits with strength forecasted through 2026 (see chart below).
Source: Yardeni.com (Yardeni Research)
Another factor underpinning the strength of stocks has been the decline in the inflation rate. The latest headline inflation rate (CPI – Consumer Price Index) fell to 2.9% in July, and if you exclude shelter costs, inflation has fallen below the Federal Reserve’s 2% target rate.
Source: Calafia Beach Pundit
Conversely, the story was quite different in 2022 when the Federal Reserve began its crusade against out-of-control inflation (see chart below) by starting its first of 11 interest rate hikes that spanned from January 2022 through July of 2023. The net result was a stock market that tanked -19% in 2022. More recently, the Fed has clearly signaled that inflation is more under control with traders predicting a 100% probability of a -0.25% or -0.50% cut in the targeted Federal Funds interest rate on September 18th. The Federal Reserve Chairman Jerome Powell gave a dovish speech at the annual policy meeting in Jackson Hole, Wyoming strongly portending September action – the first cut in four years since the pandemic.
AI Arms Race on Spending
Another dynamic contributing to new stock market record highs is the boom in AI (Artificial Intelligence) spending by the technology behemoths like Amazon.com Inc. (AMZN), Microsoft Corporation (MSFT), Meta Platforms Inc. (META), and Google – Alphabet Inc. (GOOGL). As I have been talking and writing about for some time (see World of AI), there is an arms race in spending to create the next, latest-greatest large language model (LLM) like ChatGPT. The goal is to bring more efficiency and accuracy to businesses and provide consumers more pleasure and time savings at both work and home. As you can see from the chart below, the four colossal technology companies previously mentioned are currently on a run-rate of spending more than a mind-boggling $200 billion annually, much of that going to the king of AI GPU (Graphics Processing Unit) manufacturing, NVIDIA Corporation (NVDA).
Why are companies spending so much on AI? Because they agree with NVIDIA CEO, Jensen Huang, who last week stated, “Generative AI will revolutionize every industry.” Despite all the spoils migrating to NVIDIA, traders were still looking for warts on the AI supermodel when they reported 2nd quarter results last week. Nonetheless, NVIDIA still delivered its 5th consecutive quarter of greater than 100% revenue growth, while generating revenues of almost $100 billion over the last 12 months – not too shabby. Although greedy investors wanted more, the stock was still up +2% for the month and +141% so far this year.
Source: Sherwood News
While economic, political and geopolitical concerns have been boiling over around the world, the stock market continues to sizzle higher. Declining inflation and interest rates, escalating business profits, and spiking artificial intelligence expenditures across corporate America have kept stocks cooking to record highs. It’s been a sweltering summer but not yet too hot for investors to get roasted out of the stock market kitchen.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (September 3, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks , certain exchange traded funds (ETFs), including AMZN, MSFT, META, GOOGL, NVDA, but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
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