Category AI

Nvidia’s Expectations Gap: Why High Quality Doesn’t Always Mean High Returns Nvidia’s Expectations Gap: Why High Quality Doesn’t Always Mean High Returns

Nvidia’s Expectations Gap: Why High Quality Doesn’t Always Mean High Returns

Nvidia's latest quarterly numbers were very impressive - producing 78% sales growth. They dominate the market for AI chips. A small nitpick could be the three point decline in gross margins (but that's expected). Let's not forget - those gross margins are still 73%. No-one else comes close in the semiconductor industry. So why would the stock tank 8.5%? Simple: expectations. The market knew that Nvidia was going to grow at revenue at least 70%+ where gross margins would be north of 70%. But growth is slowing (as they get bigger) and margins are declining (as competition starts to ramp up)

AI Capex vs. ROIC: Why Investors are Questioning Big Tech’s $1 Trillion Bet AI Capex vs. ROIC: Why Investors are Questioning Big Tech’s $1 Trillion Bet

AI Capex vs. ROIC: Why Investors are Questioning Big Tech’s Trillion Bet

Large-cap tech's planned capex for 2025 is worrying investors. What will be the return on that capital? Never before have these companies made such large bets. Before DeepSeek, it was assumed the tech giants - with their deep pockets and almost limitless resources - would enjoy a wide moat in the AI arena. And from there, that justified the high valuation multiples. Not now. DeepSeek’s arrival challenges those long held assumptions (and valuations).

AI Infrastructure ROI: Why Investors are Questioning the $1 Trillion Capex Cycle AI Infrastructure ROI: Why Investors are Questioning the $1 Trillion Capex Cycle

AI Infrastructure ROI: Why Investors are Questioning the Trillion Capex Cycle

AI investors were caught off guard this week on news of China's ChapGPT rival "DeepSeek". It's alleged DeepSeek was developed far more cost-effectively (millions vs billions) than OpenAI's ChatGPT (and similar large language models). If true (and we don't know) - this raises questions about the sustainability of current U.S. AI infrastructure investments - forecast to top $1 Trillion next year. All of a sudden - valuations for these AI stocks are being questioned.

Stocks Pause on ‘Less than Magnificent’ Earnings

October - synonymous for delivering market jolts - passed with barely a whimper. However, it was the market's first negative month since April. Are stocks losing their mojo? In short, large cap tech earnings from five of the 'Mag 7' were less than magnificent. Meta, Apple and Microsoft all dropped post earnings. Google managed a small 5% rise initially - but gave it all back. Amazon managed hold gains of ~3%. This post talk to what the market expects from the nearly $1 Trillion in AI capex... and how their patience could be starting to wane...

Economic Indicators: When “Bad News” Becomes “Bad for Markets” Economic Indicators: When “Bad News” Becomes “Bad for Markets”

Economic Indicators: When “Bad News” Becomes “Bad for Markets”

Last weekend I questioned whether markets could break out to the upside; or perform what trader's refer to as a "back and fill". My best guess was the latter. In turns out, things traded 'per the script', where the S&P 500 suffered its worst week since March 2023 - giving back 4.20%. The Nasdaq fared far worse - shedding ~6% - led by large losses in popular AI chip stocks. So why are market's worried? It's concerns about growth. With a market trading close to ~22x forward earnings - expecting YoY EPS growth of 11% -- that's not consistent with 'slowdown' scenario.

It Wouldn’t be September Without a Few Bumps

September has started in a very typical September fashion. Down! It's traditionally the worst month of the year in terms of returns. But that's not a bad thing... As longer-term investors - it's great when things go on sale. That's when we get to sharpen our pencils on higher quality businesses. And for those who missed out four weeks ago (where you needed to act fast) - it's possible you will get another chance this month. As I wrote recently - the rapid 10% surge in equities over 4 weeks did not fill me with a lot of confidence...