US Stocks Jump on Fed Rate Cut Bets but Lose Ground on the Week

Stocks

Economic

Summary:

As a result, financial markets are pricing in an increased likelihood of a third and final rate cut this year from the Fed. CME's FedWatch tool sets the odds at 73.3%, a significant bump from 39.1% on Thursday.

Wall Street stocks closed sharply higher on Friday as rising expectations of a December interest rate cut by the Federal Reserve offset concerns over lofty tech valuations.

A broad rally started gathering momentum by late morning, pushing all three major U.S. stock indexes to substantial gains on the day. Benchmark Treasury yields fell, the dollar was steady and bitcoin pared its losses.

The volatile session caps a tumultuous week in which U.S. and world stocks lost ground from last Friday's close.The Fed, deprived of official U.S. economic data during the recently ended government shutdown, at last got a fresh glimpse of the labor market on Thursday, which showed the unemployment rate unexpectedly ticking higher.

Messaging from monetary policymakers is mixed. New York Fed President John Williams said the Fed could still cut rates in the near term, while Dallas Fed President Lorie Logan called for them to be left on hold while the central bank assesses the effect of current rates on the economy."New York Fed President Williams' comments seem to have shifted the perception on that December rate cut potential," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.

"Part of the reason for the move today is that Williams was seen as one of the hawkish leans, so the market could perceive it representing someone stepping over the line towards the dovish point of view."

"Other than that, yesterday was a pretty broad and rough selling day into the close, so (the market was) primed for some bounce," Mayfield added.Solid earnings from artificial intelligence vanguards, notably chipmaker Nvidia (NVDA.O), momentarily eased concerns that AI-related tech stocks, which powered the stock market's rally in recent months, are overpriced and could be due for a correction.

The third-quarter earnings season is nearly wrapping up, with more than 94% of the companies in the S&P 500 having reported. Of those, 83% beat earnings estimates, according to LSEG data.

The Dow Jones Industrial Average (.DJI) rose 493.30 points, or 1.08%, to 46,245.56, the S&P 500 (.SPX) rose 64.20 points, or 0.98%, to 6,602.96 and the Nasdaq Composite (.IXIC) rose 195.04 points, or 0.88%, to 22,273.08.

European stocks ended lower, logging a weekly decline due to worries over stretched tech valuations, while defense shares slid on signs of progress toward ending Russia's war on Ukraine.

MSCI's gauge of stocks across the globe (.MIWD00000PUS) rose 2.73 points, or 0.28%, to 971.26.

The pan-European STOXX 600 (.STOXX) index fell 0.33%, while Europe's broad FTSEurofirst 300 index (.FTEU3) fell 7.27 points, or 0.32%.

Emerging market stocks (.MSCIEF) fell 36.17 points, or 2.64%, to 1,335.37. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed lower by 2.67%, at 685.82, while Japan's Nikkei (.N225) fell 1,198.06 points, or 2.40%, to 48,625.88.

The dollar looked set to register a weekly gain but weakened against the yen, as Japanese officials stepped up their verbal intervention to stem the yen's decline.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.01% to 100.15, with the euro down 0.09% at $1.1517.

Against the Japanese yen, the dollar weakened 0.68% to 156.41.

Cryptocurrencies sank to multi-month lows amid a broader flight from riskier assets. Bitcoin fell 2.93% to $84,661.00. Ethereum declined 4.64% to $2,744.76.

U.S. Treasury yields dipped as Fed rate cut bets rose.

The yield on benchmark U.S. 10-year notes fell 4.1 basis points to 4.063%, from 4.104% late on Thursday. The 30-year bond yield fell 1.7 basis points to 4.715% from 4.732% late on Thursday.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 5.1 basis points to 3.508%, from 3.558% late on Thursday.

Oil prices extended their decline for a third session, touching a one-month low as the U.S. pushed for a Russia-Ukraine peace deal.

U.S. crude fell 1.59% to settle at $58.06 per barrel, while Brent settled at $62.56 per barrel, down 1.29% on the day.

Spot gold fell 0.29% to $4,065.29 an ounce. U.S. gold futures fell 0.05% to $4,054.30 an ounce.

Source: Reuters

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Manuel

Political

Economic

From the minute Donald Trump slapped tariffs on Brazil, President Luiz Inacio Lula da Silva bet the US leader was going all-in on a weak hand. The wager paid off Thursday, when Trump limped away from the battle.

In an executive order, Trump exempted dozens of Brazilian food products, including coffee and beef, from the 40% increased tariffs he imposed in an ill-fated attempt to help former President Jair Bolsonaro dodge a coup attempt trial.

Together with prior exemptions, the move will leave many of the nation’s major exports free from heightened US duties, a victory for an agricultural powerhouse that ranks as the world’s largest beef and coffee producer and counts the US as its No. 2 trade partner.

It’s an even bigger win for Lula, the 80-year-old leftist who staked his once-struggling presidency on the fight with Trump, and may have just provided a model for how similarly-situated nations should approach the combative American leader.

About 22% of Brazilian exports to the US are now facing tariffs, down from 36%, Vice President Geraldo Alckmin said Friday. Trump is notoriously unpredictable and doesn’t like to lose, and broader trade talks are ongoing. But for now, at least, Lula appears to have triumphed on Brazil’s most important products without making any major concessions, a feat few others have managed.

To the Brazilian and his team, it’s vindication of a strategy that mixed outright defiance with patience and a dash of charm, a cocktail that allowed Lula to outlast a counterpart who’d underestimated the domestic cost of a trade war with a nation that produces so many goods Americans love to consume.

“Everybody panicked and got nervous, but I don’t usually make decisions when I have a fever,” Lula said at an event in Sao Paulo after the exemptions were unveiled. “Today I’m happy.”

From the start, Lula and his closest allies believed they had decent odds in their favor, even as they braced for a potential 1% tariff hit to Latin America’s largest economy.

After Trump threatened levies if Bolsonaro’s trial went forward in July, the government resolved that it wouldn’t blink, according to an adviser who spoke on the condition of anonymity. Instead, Lula would make the case that Trump and Bolsonaro — whose son had moved to the US to lobby for sanctions on Brazil — were threatening its sovereignty and intervening in domestic affairs. Lula Stares Down Trump and Scores Tariff Victory for Brazil_1

Lula Stares Down Trump and Scores Tariff Victory for Brazil_1

While he wielded a sharp tongue toward Trump in public, Lula left the door open for negotiations and made calculated arguments against the economic logic of the levies. Brazil, he often pointed out, typically runs an annual trade deficit with the US, the type of relationship Trump says he wants.

His government reasoned that Trump would ultimately realize he couldn’t save Bolsonaro from a Supreme Court over which Lula had no authority, the adviser said. And because the US depends heavily on Brazilian coffee, meat and other products, it sensed that American price pains would eventually push Trump to the table.

Lula was emboldened by rising approval ratings and early moves from Trump, who exempted hundreds of goods from the tariffs before they even went into effect. He stood firm even when high-level communication with Washington ceased and Trump ramped up the pressure with sanctions on Brazilian officials.

Lula’s team long believed that if they could get the leaders in the same room, the famously charismatic president could win Trump over with charm he’s used to woo leaders like George W. Bush and Emmanuel Macron in the past.

Finally, in September, it happened: Just two weeks after Bolsonaro’s conviction, Trump raved that he and Lula had “excellent chemistry” during a brief encounter at the United Nations. He described their subsequent phone call, in which Bolsonaro was never mentioned, as “very good.” Trump and Lula then emerged from an October meeting in Malaysia talking about a deal.

By then, the predicted US economic pain had materialized. Coffee futures spiked to record levels as stocks of Brazilian beans in exchange-monitored warehouses fell to the lowest levels since 2020, while beef prices surged as restrictions on Brazil added to domestic shortages.

Stockpiles of Brazilian coffee held by roasters in the US had fallen to near zero ahead of the reprieve, said Marcio Ferreira, the chairman of Brazilian coffee exporters group Cecafé.

US officials have cast the exemptions as part of a broader strategy amid ongoing negotiations. A majority of Americans, however, say Trump’s doing more to hurt the economy than help it, recent polls show.

Lula, by contrast, is in a much different spot a year from Brazil’s 2026 election. He ranked as South America’s most popular leader in October, while Bolsonaro’s legal woes have thrown the Brazilian right Trump sought to rally into disarray.

The tariff reprieve also came at a fortuitous time, after a deadly police raid in Rio de Janeiro pushed violence and crime to the forefront of political conversations, exposing potential vulnerabilities for Lula.

Now other world leaders may look to him as an example. Lula met with South Africa’s Cyril Ramaphosa on Friday ahead of the Group of 20 nations summit in Johannesburg, a gathering Trump is boycotting amid that ongoing feud. Lula is willing to “help however he can, of course,” if his fellow BRICS member felt he needed support, top foreign policy adviser Celso Amorim told reporters in South Africa.

Lula’s primary aim is to cinch a broader trade framework with the US, and Brazil’s foreign ministry said Thursday it will keep pushing for a deal. Sensitive issues like big tech regulation and critical minerals are likely to feature, and the US sanctions on Brazilian officials remain in place.

But after months under Trump’s glare, Lula clearly senses he’s on the cusp of total victory.

“I just wanted to tell President Trump the following: I’m going to thank you only partially,” Lula said in a video posted to social media. “I’ll thank you fully when everything between us is agreed upon.”

Source: Bloomberg

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Manuel

Bond

Stocks

Equity investors are growing increasingly concerned about the amount of leverage that Big Tech is taking on to build out its artificial intelligence infrastructure as the industry faces rising fears of a bubble.

The enormous sums major technology companies are spending on AI are nothing new, but the record pile of debt they’re raising to do it is. What’s worrying stock traders is the trend represents a break from recent history, when companies tapped their huge cash piles to pay for their capital expenditures. The use of leverage and the circular nature of many of the financing deals introduces a level of risk that wasn’t there before.

“I view this as the AI story maturing and entering a new phase, one that is likely to be marked by more volatility and additional risk,” said Lisa Shalett, chief investment officer of Morgan Stanley’s wealth management arm.

The Nasdaq 100 Index rose 1.6% on Friday. Nvidia Corp. shares swung between slight gains and losses for most of the session, but spiked in the afternoon after Bloomberg News reported that US officials are having early discussions on whether to let the company sell its H200 AI chips to China.

Just a few months ago, AI spending was primarily coming from a few companies with strong balance sheets and robust growth in free cash flow. That has changed, and the tech industry’s risk profile has along with it.

The new dynamic was on display Thursday, as tech stocks swung from way up after Nvidia’s strong earnings to way down as investors assessed how much capital will be required to finance an AI world compared with the profitability timelines of those investments.

“We’ve seen an expansion of the ecosystem to include companies with weaker balance sheets like Oracle and CoreWeave, more debt, and we’ve also seen more interlocking and circular revenue relationships,” Shalett said. “That interconnectivity between the players brings systemic risk.”

Valuations among the big tech names have also come in as a result of investor unease. The forward 12-month price-to-earnings ratio of the Bloomberg Magnificent 7 Index has fallen to its lowest in more than two months and is trading in line with its average over the last five years.

The five major spenders on AI — Amazon.com Inc., Alphabet Inc., Microsoft Corp., Meta Platforms Inc. and Oracle Corp. — have raised a record $108 billion in debt combined in 2025, more than three times the average over the previous nine years, according to data compiled by Bloomberg Intelligence.

Oracle’s offerings have come under particular scrutiny. The stock soared in September after the company sold $18 billion in US investment-grade bonds to ramp up its AI spending and banks launched a $38 billion debt offering to fund data centers tied to Oracle. But since hitting a record high on Sept. 10, the shares have plunged 40% as investors reassess what the company’s aggressive capex is doing to its balance sheet and how it is financing its huge capital expenditures. The stock is on track for its biggest one-month drop since August 2001.

Five-year credit default swaps on Oracle, which reflect leverage risk, have blown out to their highest level in three years.

“To see Oracle’s CDS go up shouldn’t be surprising,” said Arnim Holzer, global macro strategist at Easterly EAB. “These companies are investing massive amounts and committing to massive amounts of capex, some of which will be financed with debt. This doesn’t mean Oracle’s stock is trash, but it should be more volatile.”

Oracle has forecast $35 billion in capital expenditures in its current fiscal year, with much of it going to its cloud business. The spending is taking a toll on the company’s balance sheet, with free cash flow expected to be negative $9.7 billion this year after falling into the red last year for the first time since 1990. The deficit is projected to expand in the subsequent two fiscal years, reaching negative $24.3 billion in fiscal 2028.

S&P Global Ratings recently revised its outlook on Oracle to negative “because of its strained credit profile from anticipated capex and debt issuance to fund accelerating AI infrastructure growth,” it wrote in a note dated Nov. 6.

But the credit binge isn’t just on Oracle. Meta has issued $30 billion worth of bonds, Alphabet sold $38 billion, and Amazon.com Inc. raised $15 billion, according to Bloomberg Intelligence.

“We might just be in the beginning stages of an AI capex buildout, but that sort of also implies we’re probably in the early stages of releveraging balance sheets,” said Robert Schiffman, senior credit analyst at Bloomberg Intelligence. “I would be worried that this flood of issuance is probably just the start of things to come for the next couple of years.”

Until recently, capex was accepted as a necessity of participating in AI. Some investors even viewed it as a positive reflection of confidence by the companies. But it’s coming under increasing scrutiny as those Wall Street pros want to see stronger returns on the investments. Adding debt to the equation only sharpens that issue.

“When companies that don’t need to borrow are borrowing to make investments, that sets a bar for the returns on those investments,” said Bob Savage, head of markets macro strategy at BNY. “We’re in a ‘show me the money’ phase.”

Still, despite the increased leverage, investors remain generally positive on megacap tech stocks due to their durable earnings growth and strong competitive positions. What’s more, about 80% to 90% of planned capex from big tech firms is coming from their cash flows, according to UBS estimates.

“It seems a little overblown to say that these offerings are a major turning point and that the AI hype bubble will be burst,” Savage said. “The debt could complicate the story, but I don’t think it changes the thesis.”

Source: Bloomberg

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Manuel

Political

Commodity

President Volodymyr Zelenskiy said Ukraine risks losing its key partner after the US threatened to cut off support unless Kyiv agrees to a peace deal that would force it to cede territory to Russia, cap the size of its military and pledge never to join NATO.

“Now it’s one of the most difficult moments in our history,” Zelenskiy said in a video address to the nation on Friday after he was presented with a 28-point peace plan drafted by the US and Russia. “Ukraine may face a hard choice — either the loss of our dignity or the loss of our key partner.”

Kyiv’s biggest European allies have lined up with Zelenskiy to push back against elements of the plan, which would force Ukraine to give up large chunks of territory taken by Russia, acceding to many of President Vladimir Putin’s wartime demands.

The US increased pressure on Zelenskiy to agree to the deal with a threat to stop intelligence-sharing and weapons supplies to Ukraine unless Kyiv agrees to the peace plan by next Thursday, according to people familiar with the matter.

President Donald Trump, speaking Friday to Fox News Radio, said Ukraine is losing land and the US just wants “the killing to stop.” He declined to characterize the timeframe as a deadline and said the US had no plans to lift sanctions against Russia for now.

“I’ve had a lot of deadlines, but if things are working well, you tend to extend the deadlines,” he said. “Thursday is, we think, an appropriate time.”

The scope for Zelenskiy to avoid making major concessions to Moscow is narrowing as his country faces deadly Russian air strikes on energy infrastructure ahead of winter and uncertainty over continued western support.

At the same time, the dramatic acceleration in the US push to cut a deal with Moscow has left Kyiv’s European allies scrambling for a response. The European Union has been struggling to agree on a mechanism that would unlock about €140 billion ($160 billion) to sustain the Ukrainian war effort as the US dials back its support for Kyiv.

Zelenskiy said in a social media post later Friday that he spoke with US Vice President JD Vance and Army Secretary Dan Driscoll, who traveled to Kyiv to discuss the issue, for almost an hour.

“We managed to cover a lot of details of the American side’s proposals for ending the war, and we’re working to make the path forward dignified and truly effective for achieving a lasting peace,” Zelenskiy wrote. “We agreed to work together with the U.S. and Europe at the level of national security advisors to make the path to peace truly doable.”

German Chancellor Friedrich Merz, France’s Emmanuel Macron and Keir Starmer of the UK agreed on a call with Zelenskiy on Friday that Ukraine’s armed forces must remain capable of defending its sovereignty and that the current line of contact should be the starting point for any peace talks, according to a statement from the German government.

Putin also weighed in Friday, again accusing Kyiv of being the obstacle to peace and suggesting that it was the US and not Russia that had proposed the latest agreement.

“We received it through existing channels of communication with the American administration,” Putin said. “I believe it could also form the basis for a final peace settlement, but this text hasn’t been discussed in detail with us.”

Under the plan, a copy of which was seen by Bloomberg News, the Ukrainian regions of Crimea, Luhansk and Donetsk would be “recognized as de facto Russian, including by the United States,” Ukraine would also be required to hold elections in 100 days, give up any hope of NATO membership and slash the size of its armed forces.

European leaders will now meet on the sidelines of the Group of 20 conference in South Africa on Saturday to map out the next steps, according to a person familiar with matter. Finnish President Alexander Stubb, who’s earned the reputation of having the ear of Donald Trump, is also expected to join, according to a person briefed on the plans, who asked not to named because the talks are private.

There are doubts among European leaders about the status and legitimacy of the plan, one official said. They also characterized it as tantamount to a capitulation by Ukraine with Russia getting what it wants, the official added, requesting anonymity to talk freely on the matter.

The plan appears to maximize the potential for future Russian hybrid and false-flag operations that would see Moscow claim Ukraine breached the terms and then re-invade, a senior European official said. The official added that it resembled Russia’s demands at previous talks and was unacceptable to Europe and Ukraine.

“It’s about a just and lasting peace, and we consider elements of this plan to be effective towards this goal,” German government spokesman Stefan Kornelius told reporters in Berlin on Friday. “We want to participate constructively in guiding this into a dynamic that will bring us closer to our goal of a lasting peace in Ukraine.”

Many details of the plan are proposals that have been rejected by Ukraine and its allies in the past. NATO member states may also object, given that the plan would curtail the defense alliance’s ability to admit new applicants as it sees fit. Such a move would need the buy-in of all 32 of its members.

The plan entails Ukraine receiving a US security guarantee — albeit one that Washington would be compensated for. The US would also get 50% of profits to rebuild and invest in Ukraine, and enter an economic partnership with Russia once sanctions are lifted.

The latest proposal was worked out between Trump’s envoy Steve Witkoff and Putin’s representative Kirill Dmitriev, according to people familiar with the matter. It follows past Witkoff efforts that Ukraine has been wary of and faced almost immediate opposition from Europe.

Source: Bloomberg

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Justin

Economic

The $7 trillion market for securities linked to US inflation will employ fallback mechanisms for the first time after the longest government shutdown in history derailed economic data collection.

The nation's Bureau of Labor Statistics said it was cancelling its October consumer price index report, saying it was unable to retroactively collect some data. The inflation-protected segment of the US Treasury bond market and US inflation derivatives both use the CPI to determine how much investors get paid.

The lack of official data will trigger contingency plans written into legal documentation decades ago, with the added wrinkle that the bond and derivatives markets use different fallbacks.

The he cancellation was widely anticipated. White House officials Oct. 24 said October inflation data probably wouldn't be released, and the BLS said Wednesday that the October unemployment rate wouldn't be calculated because of the Oct. 1 to Nov. 12 shutdown.

"Even before the announcement, it was general consensus that the fallback would be activated for October, so the market had largely already priced this in," said Jon Hill, head of US inflation strategy at Barclays Capital Inc.

While past shutdowns delayed publication of economic data, until now the BLS hasn't failed to produce a major report.

The lack of data is a headache for investors in general at a time when US inflation — despite having receded from the generational highs reached in 2022 amid pandemic-related supply-chain disruptions — continues to exceed the Federal Reserve's 2% target. As a result, several Fed policymakers are opposed to lowering interest rates further after two cuts this year in response to signs of job-market stress.

That's increased the power of inflation data to move markets, and some Fed officials have said the lack of data is a justification for pausing rate cuts at their next meeting scheduled for Dec. 9-10.

The BLS said it will publish November CPI data on Dec. 18, meaning the latest official inflation data available to the rate-setting committee will be from September.

The BLS typically gathers pricing information from roughly 80,000 items across the country, mostly in-person. While the agency recalled staff to prepare the September CPI report — which was needed for US Social Security to calculate its annual cost-of-living adjustment — October data weren't collected.

The agency said it can acquire most of the non-survey data for October and "where possible" will publish such values in the November release.

For Treasury Inflation-Protected Securities, or TIPS, monthly CPI values are used to interpolate daily index ratios that determine — with a time lag — accrued interest, which is due to the seller of a bond by its buyer. The October CPI would be used to interpolate values for Dec. 2 to Jan. 1, 2026.

In the absence of a published CPI value, regulations for TIPS call for a synthetic number "based on the last available twelve-month change in the CPI," in this case from September 2024 to September 2025.

Inflation derivatives use a different fallback, creating a divergence between TIPS, a $2 trillion market, and swaps.

Standard inflation swap contracts — with a notional value outstanding of about $4.5 trillion at LCH, the clearinghouse unit of London Stock Exchange Group — employ International Swaps and Derivatives Association rules. If the derivative is not linked to a specific bond, ISDA's fallback calculation applies the September 2025 year-on-year change to the October 2024 level.

The difference in methodology leads to diverging payouts. For October, the TIPS fallback would produce an index reading of 325.604, while the swaps fallback would be 325.174, according to Bloomberg calculations.

TIPS maturing in January 2026 greatly outperformed inflation swaps in recent weeks, "reflecting the market pricing in a meaningful probability of the fallback being activated," Barclays' Hill said.

Earlier this month, ISDA issued guidance on how the swap fallbacks would be triggered "in the interest of mitigating market risk and the promotion of orderly valuation and settlement of positions by market participants."

Source: Bloomberg Europe

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Justin

Economic

The U.S. Labor Department will not release the October Consumer Price Index (CPI) due to a government shutdown, rescheduling the November report for December 18, 2025, as stated by Jin10 data.

This delay affects market volatility, influencing cryptocurrencies such as BTC and ETH, as U.S. CPI figures guide interest rate expectations and monetary policies.

Government Shutdown Delays CPI Report, Markets React

The U.S. Labor Department cites the government shutdown as the reason behind the absence of the October CPI report. BLS leadership faces capacity challenges due to vacant positions, and essential staff are affected by ongoing hiring freezes. The immediate impact on financial markets is notable, given the relevance of CPI data to interest rate expectations and monetary policy decisions. Analysts anticipate a significant reaction in the prices of key cryptocurrencies, particularly those sensitive to U.S. economic indicators.

To date, no government officials have publicly commented on this specific report cancellation. However, the lack of critical economic data prompts discussions in financial sectors about its wider implications.

"The BLS calendar contains publication dates for most news releases scheduled to be issued by the BLS national office in upcoming months. ... The calendar is updated as needed with additional news releases, usually at least a week before their scheduled publication date." — U.S. Bureau of Labor Statistics, Official Entity, BLS

Source: CryptoSlate

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Adam

Economic

As we share below, the odds of a Fed Funds rate cut at the December FOMC meeting are down to 33%. On Wednesday, there was an abrupt repricing of rate cut odds after the BLS cancelled the October employment report and delayed the November data until December 19th. Furthermore, the BLS JOLTS report for September has been canceled, and the data for October will be released on December 9th.

For reference, the FOMC meeting is on December 10th, so they will lack meaningful employment data when deciding whether to cut rates. The weakening labor market is the predominant reason the Fed cut rates by 25 bps at each of its last two meetings.

Despite the absence of recent employment data, Fed officials will argue that they can still assess the labor market using alternative data sources. Markets do not agree, as judged by the downgrade in rate-cutting odds. For what it’s worth, the last two weekly ADP employment change reports show a decline of 11,250 jobs in the last week of October, and another loss of 2,500 jobs in the first week of November.

In other Fed news, the minutes from the FOMC’s October meeting, released on Wednesday, show a deep divide over whether to cut interest rates at the December meeting. Several officials noted that progress in lowering inflation has “stalled” and cautioned that further rate cuts could risk entrenching higher inflation and undermining the Fed’s credibility regarding its 2% inflation target.

However, another group argued that further cuts are necessary to guard against rising unemployment and some signs of weakening economic growth. Per the minutes:

“Participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the first half of the year.”

Rate Cut Odds Slip Due to Lack of Data_1

Nvidia Hits Another Home Run

Once again, NVIDIA (NASDAQ:NVDA) reported stellar quarterly earnings. For the third quarter, the company reported revenue of $57.0 billion, surpassing analyst expectations of $55.4 billion. The increase represents a 62% year-over-year rise and a 22% increase compared to the prior quarter. Not surprisingly, their data center segment accounted for a significant portion of the revenue ($51.2 billion). Adjusted earnings per diluted share came in at $1.30, beating Wall Street’s $1.26 forecast. Per Nvidia’s CEO Jensen Huang,

Blackwell sales are off the charts, and cloud GPUs are sold out. Compute demand keeps accelerating and compounding across training and inference — each growing exponentially. AI is going everywhere, doing everything, all at once.

It’s not just the sales and earnings growth that make Nvidia’s story bullish; its gross margins were little changed at a whopping 73.4% on a GAAP basis. Furthermore, as in prior reports, they continue to provide forecasts that exceed Wall Street’s expectations. The initial market reaction was positive, with the stock gaining about 5%.

Rate Cut Odds Slip Due to Lack of Data_2

The screenshot below, courtesy of FinViz, shows that with the new earnings data, Nvidia has a PEG ratio of 1.10. That is cheaper than the S&P 500 and well below some of its technology-sector competitors. The PEG ratio below assumes a P/E ratio of 48 and a five-year future EPS growth rate of 44%. While such growth is a tall order, it is a good bit slower than their 65% EPS growth over the last year. This leaves us with two questions to ponder:

Is Nvidia’s earnings report enough to alleviate recent fears of a bubble in the AI industry?

Might Nvidia be a value stock?

Rate Cut Odds Slip Due to Lack of Data_3

Nvidia: The Bearish Take

The prior section spoke highly of Nvidia’s earnings announcement. We thought it would also be helpful to point out some aspects of the report that some claim are not so positive.

The first graph below shows that inventories are up 32% quarter over quarter. If their GPUs are sold out, why is the inventory increasing rapidly?

Accounts Receivable grew by $5.58B in the last quarter. Take away growth in accounts receivable and revenue missed expectations by $3.49 billion.

A significant discrepancy between the net income declared of nearly $32B and the operating cash flow of $24B. Some claim this is due to creative accounting.

The second graphic below is a tweet from Michael Burry. He has recently claimed that companies are using depreciation schedules for Nvidia chips that exceed the chips’ useful lives. Doing so props up earnings by reducing expenses. Accordingly, better-perceived financial health allows companies to finance CAPEX, which ultimately flows to Nvidia.