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Titan of Wall Street or Villain?

It was a mixed week as far as markets were concerned.  The Nasdaq outperformed by a wide margin as Nvidia announced stellar earnings which single-handedly boosted the index.  The S&P looks to finish flat for the week while the Dow Jones Industrial Average appears to end lower on the back of more bad news about Boeing.  Investors remain cautious as we head into the slow part of the year.  Now that earnings season is all but finished, I expect the news cycle to return to company-specific news which will drive volatility in a narrow fashion.

I want to discuss a trend I’ve noticed recently.  It appears companies, broadly speaking, have reached the limit of their pricing power.  Put another way, I’ve noticed more announcements in the past couple of weeks of companies looking to cut prices.  This earnings season suggests that while retailers are still doing okay, revenue is a concern going forward.  McDonald's announced its plans of bringing back $5 value meals to entice customers to return.  This week Burger King announced it too is bringing out $5 value meals, presumably not to lose customers to McDonalds.  Further evidence was found in Target’s announcement that it will be lowering prices on over 5,000 frequently purchased items from groceries to hard goods.  While not all companies are affected similarly, customers are now prioritizing where they spend their money, which could help further reduce inflation.

In company news, we learned that artificial intelligence (AI) is not just hype but is in fact driving capital spending higher.  Nvidia announced earnings this week that beat analysts’ already lofty expectations.  Revenue in the quarter was $26 billion, up 262% y/y.  The bulk of the revenue came from data center growth which looks like it has considerable potential for further growth in the years ahead.  The stock smashed through $1,000 per share for the first time and added $175B in market cap overnight.  For perspective, a $175B market cap would rank as the 46th largest company in the S&P 500.  With a total market cap of $2.59T, the company is now the third largest, edging out Google and Amazon and quickly approaching Microsoft and Apple.

On a sad note, we learned that Ivan Boesky passed away this week at the age of 87.  Some of you may not be old enough to have lived through the scandal that rocked the markets in the 1980s.  Mr. Boesky amassed a fortune in the 1980s by speculating on corporate takeovers, but eventually pled guilty to insider trading.  He was the inspiration for the Gordon Gecko role in the film “Wall Street.”  And his plea deal led to the downfall of the junk bond king, Michael Milken, and the subsequent demise of Drexel Burnham Lambert.  At its peak, Boesky’s net worth was $280 million, or roughly the equivalent of $820 million today.  It is with his passing that a period of market history ends.  If you haven’t watched the movie “Wall Street” you now have a reason.

In closing, I want everyone to remember that AI is not infallible.  While its development has progressed rapidly, it still has a long way to go.  Google’s AI “Overviews” has released some odd recommendations recently.  In one example, posted on Twitter, it recommends adding “about one-eighth cup of non-toxic glue” in an answer to why cheese is not sticking to pizza.  In another instance, an AI Overview stated that eight former U.S. presidents graduated from the University of Wisconsin–Madison, including Andrew Jackson in 2005.  The company insists that these are very uncommon queries and aren’t representative of most peoples’ experiences.  Google search dominates with nearly 91% of all web searches.  Let’s hope this technology progresses a bit further before it begins showing up in our search results.  Now you know. 

Bruce J. Mason, MBA