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The Real Surprise with Powell’s (Dovish) Statement
Investors were on tenterhooks going into today’s Fed interest rate decision. Markets were up sharply the past few weeks – expecting Powell to remain dovish. However two consecutive months of hotter-than-expected inflation prints had some thinking twice. Turns out Powell is a dove. However, he delivered more dovish ‘fuel’ for stocks that what many expected.
Will Powell Heed Volcker’s Wisdom?
Next week Fed Chair Jay Powell will deliver the FOMC’s March statement on monetary policy. Interest rates are not expected to change – however his sentiment might. When we last heard from Powell – he was dovish – igniting a rally in risk assets. However, with inflation heating up and a tight job market – Powell may perform another pivot. Markets expect three rate cuts this year – those expectations might be dialed back to just two.
A Different Lens on the ‘AI Bubble’
25 years ago Cisco (CSCO) was the largest company on the S&P 500 by market cap. Its shares soared on the demand for networking equipment. But it didn’t last. The stock lost 89% of its value in two years. Nvidia is not only charting a very similar technical pattern to CSCO – there are also similarities with valuation metrics. Both the price-to-earnings ratio and price-to-sales multiples have been very similar. What we don’t know (or cannot know) is whether the same fate lies ahead for NVDA (as investors pay a staggering 35x sales for a slice of the AI pie)
Are Semi’s Set to Cool their Gen-AI Heels?
Whilst the technology sector is outperforming the benchmark index this year — semiconductor stocks have done the bulk of the heavy lifting. And it’s not difficult to explain investor FOMO. It’s entirely due to the hype around “AI” and specifically something called “Generative AI”. For example, in a report by Grand View Research, they valued Gen-AI at ~$13B last year. However, its anticipated CAGR is estimated to be ~36% – which puts the industry hitting $109B by 2030. That’s a sharp ramp higher from basically zero two years ago. And today – there a very few chipmakers who produce the GPUs required to meet the insatiable demand. However, is the demand semis are seeing today (and revenue) sustainable long-term? That’s unlikely.