This issue is brought to you by:

“Parties weren't meant to last.”

- Prince, 1999

Friday Party Time Charts

Nvidia kept the market party going this week with another set of historic results, adding $277 billion of market cap on Thursday alone.

Counterintuitively, it also got cheaper: Impressive as it was, the stock’s 16% move on the day fell short of the move in earnings estimates, which were up about 20%.

To me, this makes NVDA feel like AAPL in the 2010s; back when Apple’s market cap got so large there weren’t enough investment dollars available for the stock to keep pace with rapidly rising earnings — for years, the more money Apple made, the cheaper the stock got.

Of course, we should stay alert to the possibility that NVDA is not AAPL in 2010 but CSCO in 1999. 

Like Cisco then (and unlike Apple now), Nvidia is a cyclical company — typically, you want to buy cyclicals when valuation is high (because earnings are temporarily low) and sell them when valuation is low (because earnings are temporarily high).

Nvidia’s earnings are very high right now as the GPUs it sells are in acutely short supply.

This presumably won’t be the case forever. 

The 1990s dotcom boom ended roughly when Cisco’s customers flipped from double ordering networking equipment because it was in short supply, to ordering only what they needed because supply became plentiful.

I suspect that the 2020s boom will end in the same way, with GPUs in the role of networking equipment and Nvidia in the role of Cisco. 

But that doesn’t have to be anytime soon!

Economist Ed Yardeni — whose call for a new “Roaring ‘20s” is looking ever more prescient — said this week that he expects the S&P 500 to hit 6500 by the end of 2026, boosted by a surge in AI-generated productivity.

There are risks, of course.

Tactically, the trillion-dollar question for markets might be what comes first: the hoped-for surge in AI productivity or the inevitable surge of GPU supply.

In investing, you never want to be the guy popping champagne corks just as everyone else is grabbing their coats and heading for the door. 

So it’s important to heed Prince’s warning that parties are not meant to last.

This one, however, feels like it’s just getting started.

Let’s check the charts.

Race to the top:

As fast as Nvidia’s stock is going up, its earnings are going up even faster. The green bars won’t go up forever, though, which means the white line won’t do, either.

Race back to the top:

Before there was the dotcom bust, there was the Japan bust. It’s finally over. The Japanese Nikkei 225 stock market index hit a new all-time high today, evidence that the true risk-free asset class is equities.

It’s not just financial markets:

The benefits of the current expansion have been broad. Real, inflation-adjusted wages continue to rise for lower-paid employees while wages for higher-paid managers have fallen.

Plenty of time still to pop the champagne?

NVDA may prove to be our CSCO, but if so, we’d still have a long way to go for the AI boom to match the dotcom boom.

Just getting started?

Thursday was a rare instance of the Nasdaq being up 3% on the day while also closing at a new all-time high — but there may be many more to come: @bespokeinvest notes that there were 32 such instances (the green dots above) before the dotcom bubble peaked in 2000. Are we only in 1991 then?

Inflation surge to productivity surge:

The US may have gotten a running start on the productivity boom. Just wait until the robots start doing everything for us.

Liquidity surge?

AI may cause a surge of liquidity long before we find out whether it makes us any more productive. 

What if we get a liquidity boom and a productivity boom?

That would really be something to celebrate.

Have a great weekend, party animals.

― Byron Gilliam

This issue is brought to you by:

Vertex is a leading DEX on Arbitrum offering spot, perpetuals & money markets with unified cross-margin. Trade with lightning-fast speeds and super-low fees across 30+ markets.

Unleash your trading with Vertex Edge – multiple chains, one layer of “synchronous orderbook liquidity.”

We're Watching

In this week's roundup Jason and Santi are joined by Blockworks research analyst Matt Fiebach to unpack USDe, crypto's latest high yield synthetic dollar. They dig into Ethena Lab's latest token aiming to offer high yields from basis trading strategies.

Watch or listen to Empire on YouTube, Spotify or Apple.

Daily Insights