Nvidia among investors in xAI’s $20 bln capital raise- Bloomberg
Tech opened higher as the AI narrative is pushing up semiconductors. The pledges that OpenAI is making to suppliers for its buildout plans are stunning. The level of confidence that AI systems will be able to generate billions to pay for the massive cost to get them fully up and running is not wavering. The grand total of transactions OpenAI has entered into has topped a trillion dollars.
Warnings that we’re seeing a repeat of the Dot-Com bubble are heard regularly. The big difference is that this time, the players are huge companies with huge balance sheets and existing cash flow. If profitability takes longer than expected, a few of the hardware suppliers will suffer operating losses. Nevertheless, with the market so heavily weighted to companies that are all-in on the AI bet, any serious setbacks on the prospects of AI profitability will have a serious impact on market indexes in the short term.
With the government shutdown ongoing, the lack of economic reports has investors looking forward to the Fed minutes, which are due tomorrow, as well as several Fed official speeches taking place this week, to gain insight into how they are reaching conclusions without current data. Today, the US yields are down 1-2 bps across the curve. Bets on the quarter point cuts by the Fed in October and December are unchanged at 96% and 80%.
Gold has broken $4K and is heading higher. Silver has pulled back to $48/oz despite reports that physical shortages of silver are being reported. Gold has been a big beneficiary of central bank buying, some say because, unlike dollar assets, gold can’t be frozen by sanctions. Crude oil remains depressed at $61.60/bbl while natural gas is modestly higher, pushing towards $3.50/mcf. The energy sector is down 0.7% on the day. The US dollar index has clawed back above 98. Crypto is seeing some profit-taking after hitting a new high, with bitcoin down 2% to $122.4K
A week from today, JP Morgan will kick off the earnings season, and we’re likely to refocus on the tariffs during the earnings calls. The next Fed cut isn’t until the 29th. No one can predict when the government shutdown will be resolved, and some volatility due to the data blackout is to be expected. The trend remains positive.