Nvidia Earnings Loom as AI Investment Faces Scrutiny,Inflation Data Also on Tap
NEW YORK – August 24,2024 – Wall Street is bracing for a critical test of the AI investment narrative as Nvidia prepares to release its quarterly earnings report after market close Wednesday. The report arrives amid growing comparisons to the dot-com bubble of the 1990s, and following a important agreement between nvidia and AMD to share a portion of their China-based chip sales with the U.S. government.
The stakes are high for Nvidia, currently the market leader in AI chips, as investors assess whether the current surge in demand is sustainable. Concerns are mounting that valuations have become inflated, mirroring the speculative fervor that characterized the late 1990s tech boom.Driving the demand is massive investment from major tech companies, often referred to as “hyperscalers.” Alphabet, Microsoft, Amazon, and Meta Platforms are collectively projected to spend $400 billion on capital expenditures this year, with the vast majority earmarked for AI infrastructure. This intense spending has fueled Nvidia’s growth,but also raised questions about whether the market can absorb such a rapid expansion.
Adding another layer of complexity, Nvidia and AMD recently reached an agreement with the U.S.federal government to relinquish 15% of their chip sales to China. The deal, frist reported by Fortune on August 11th, is intended to mitigate the impact of export controls designed to limit China’s access to advanced semiconductor technology. The legality of this arrangement has already been questioned, with some arguing it may be unconstitutional.beyond Nvidia, broader economic indicators will be closely watched this week.On Friday, the Personal Consumption Expenditures (PCE) index – the Federal Reserve’s preferred measure of inflation – is scheduled for release. Analysts predict the PCE will rise 0.2% month-over-month and 2.6% year-over-year,holding steady with June’s annual rate. Though, the core PCE, which excludes volatile food and energy prices, is expected to accelerate, climbing 0.3% monthly and 2.9% annually,up from June’s 2.8% annual rate.
The Fed is carefully monitoring the impact of President Trump’s tariffs on inflation, following mixed signals from earlier reports on the Consumer Price Index (CPI) and Producer Price Index (PPI). While some Fed officials, including chair Jerome Powell, have suggested that tariff-related inflation may be temporary, the labor market remains a key focus. Recent data indicates a potential softening in the labor market, which could influence the Fed’s monetary policy decisions.This confluence of factors – Nvidia’s earnings, the AI investment climate, the China chip deal, and inflation data – creates a pivotal week for the market, potentially setting the tone for the remainder of 2024. The outcome will offer crucial insights into the long-term viability of the AI boom and the broader economic landscape.
