Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
Access both platforms from your single Saxo account.
London Quick Take – 20 Nov - Nvidia earnings soothes AI worries, global equity markets rally & US jobs reports are delayed and cancelled
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Maybe so. But let’s look at credit markets. Remember JPMorgan’s monster report on the data centre and AI build-out, which estimated this “extraordinary and sustained” capital markets event will require $5tn and suck in funding from every possible source imaginable. Bond investors are not quite so giddy about AI. There is a lot of debt to swallow...Now Man Group, the world’s largest publicly traded hedge fund, warns of “a glut of supply of lower quality names in the AI space” issuing debt that “might be too much for markets to stomach”.
In a note entitled ‘Why Bond Investors Aren’t Totally Buying the AI Hype’, it says capex rollout plans are “not as gold-plated as the shiny prospectuses might suggest”, it says, warning about barriers such as a lack of power, delayed construction, cybersecurity threats, rapidly ageing technology. “The hyperscaler frenzy continues, but we remain watchful of future AI slop,” says the hedge fund and asset manager.
Back to Burry (of Big Short fame, in case you forgot). Tweeting one of those pictures showing the myriad of deals between AI companies and hyperscalers, he says it's a "fraud", adding: "True end demand is ridiculously small. Almost all customers are funded by their dealers."
Nevertheless, the healthy beat and raise by the chipmaker has boosted risk appetite. Shares in correlated names like Palantir rallied 4 after-hours, while Meta, Amazon, Alphabet and Microsoft also rose. CoreWeave jumped 10% after-hours, Nebius rallied almost 9%, and Super Micro Computer rose 6%.
Away from AI...Japan is expected to launch a $135bn stimulus package this Friday, the largest injection since the pandemic as it hopes to help households cope with higher inflation...I think I have read this script before. Japanese bond yields keep rising with the 5- and 10-year JGB yields hitting highest since 2008 as markets brace for the stimulus; the yen weakened past 157 per dollar overnight, its lowest since January.
The Fed is divided on a December cut, minutes from its last FOMC meeting revealed. “Many” officials think interest rates do not need to be lowered further for the rest of the year, but “several” assessed a reduction could be “appropriate in December.” It’s all going to be super data dependent and we have the delayed September payrolls report today. The BLS will delay the November jobs report until after the Fed’s December meeting, clouding the policy outlook and raising odds of a hold. The October report is cancelled.
Whilst US Treasury yields have remained very steady this last week we are seeing UK gilt yields start to move out, 10yr note yields up ~10bps from 4.50% to 4.60% since Friday. Sterling has seen some fresh pressure with GBPUSD sliding steadily yesterday to the 1.3030 area where it found some tentative support after those soft CPI numbers gave the green light for a December rate cut by the Bank of England, while consensus is crystallising around the Fed holding rates next month. That has helped push the dollar firmer across the board with DXY to 100 and EURUSD to around 1.1520, a two-week low.
Key Points
- Nvidia Q3 earnings beat expectations, guidance raised, soothing AI jitters
- Global stock markets bounce as tech shares catch tailwinds
- September jobs report due today, Oct report cancelled, Nov delayed until after Fed meeting
- Sterling tests $1.30 again as gilt yields climb and USD sees broad strength
Nvidia’s monster earnings report soothed concerns about AI and lifted global sock markets as shares in the market lynchpin rallied 5% after-hours on a strong beat and raise. The positivity has ignited a broad relief rally and S&P 500 futures are now trading above their 50-day moving average again. Wall St posted modest gains on Wednesday as we saw some tentative dip buying at the 6,600 level on SPX.
TL/DR: positive earnings momentum, raised guidance, strong margins and upbeat commentary from CEO Jensen Huang means AI valuations – which have considerably rerated this month – are no longer a clear barrier to a rally into Christmas.
Asian shares rallied, led by tech of course, with Nvidia suppliers SKY Hynix and Samsung lifting the Kospi in South Korea to a 2% gain, while the Nikkei was up 2.7%, though both closed off the highs of the day. Meanwhile European stock markets opened in the green amid a generally more constructive outlook for risk post-Nvidia. Bitcoin advanced too. In terms of the whole bubble or not story I don’t really see how it’s any different today than it was the last few days, but the earnings were always going to be kind of binary in their effect.
Revenues were a handsome beat, rising 62% year-on-year and 22% from the prior quarter. Q4 revenue guidance was also hiked...margins at 70%. Hard to find much here changes the story though as we knew before hand that AI demand is insatiable and hyperscalers are still spending big...the questions over AI will not be answered this quarter or until 1-2 years: a) is there enough cash, b) can it be deployed (energy), and c) can it be deployed with any semblance of efficiency. Backlog rose, constraints are in power and supply, not in demand. Forward revenues rose to a record $268 billion during the week of November 18, a fivefold increase since late 2023.
On the circular financing stuff...Nvidia mentioned in its report that there is no guarantee the company would finalise its $100bn deal with OpenAI. Nvidia had announced in September that it would invest $100bn in the AI company over several years. But, in the Q3 report, it reminded investors that an announcement is not a contract. This is of course part of the monstrous circular economy hive developing around queen bee OpenAI. And as Michael Burry (of The Big Short, of course) points out, who is OpenAI's auditor?
AI bubble? “There’s been a lot of talk about an AI bubble,” CEO Jensen Huang said on the earnings call. “From our vantage point, we see something very different.”
TL/DR: positive earnings momentum, raised guidance, strong margins and upbeat commentary from CEO Jensen Huang means AI valuations – which have considerably rerated this month – are no longer a clear barrier to a rally into Christmas.
Asian shares rallied, led by tech of course, with Nvidia suppliers SKY Hynix and Samsung lifting the Kospi in South Korea to a 2% gain, while the Nikkei was up 2.7%, though both closed off the highs of the day. Meanwhile European stock markets opened in the green amid a generally more constructive outlook for risk post-Nvidia. Bitcoin advanced too. In terms of the whole bubble or not story I don’t really see how it’s any different today than it was the last few days, but the earnings were always going to be kind of binary in their effect.
Revenues were a handsome beat, rising 62% year-on-year and 22% from the prior quarter. Q4 revenue guidance was also hiked...margins at 70%. Hard to find much here changes the story though as we knew before hand that AI demand is insatiable and hyperscalers are still spending big...the questions over AI will not be answered this quarter or until 1-2 years: a) is there enough cash, b) can it be deployed (energy), and c) can it be deployed with any semblance of efficiency. Backlog rose, constraints are in power and supply, not in demand. Forward revenues rose to a record $268 billion during the week of November 18, a fivefold increase since late 2023.
On the circular financing stuff...Nvidia mentioned in its report that there is no guarantee the company would finalise its $100bn deal with OpenAI. Nvidia had announced in September that it would invest $100bn in the AI company over several years. But, in the Q3 report, it reminded investors that an announcement is not a contract. This is of course part of the monstrous circular economy hive developing around queen bee OpenAI. And as Michael Burry (of The Big Short, of course) points out, who is OpenAI's auditor?
AI bubble? “There’s been a lot of talk about an AI bubble,” CEO Jensen Huang said on the earnings call. “From our vantage point, we see something very different.”
Maybe so. But let’s look at credit markets. Remember JPMorgan’s monster report on the data centre and AI build-out, which estimated this “extraordinary and sustained” capital markets event will require $5tn and suck in funding from every possible source imaginable. Bond investors are not quite so giddy about AI. There is a lot of debt to swallow...Now Man Group, the world’s largest publicly traded hedge fund, warns of “a glut of supply of lower quality names in the AI space” issuing debt that “might be too much for markets to stomach”.
In a note entitled ‘Why Bond Investors Aren’t Totally Buying the AI Hype’, it says capex rollout plans are “not as gold-plated as the shiny prospectuses might suggest”, it says, warning about barriers such as a lack of power, delayed construction, cybersecurity threats, rapidly ageing technology. “The hyperscaler frenzy continues, but we remain watchful of future AI slop,” says the hedge fund and asset manager.
Back to Burry (of Big Short fame, in case you forgot). Tweeting one of those pictures showing the myriad of deals between AI companies and hyperscalers, he says it's a "fraud", adding: "True end demand is ridiculously small. Almost all customers are funded by their dealers."
Nevertheless, the healthy beat and raise by the chipmaker has boosted risk appetite. Shares in correlated names like Palantir rallied 4 after-hours, while Meta, Amazon, Alphabet and Microsoft also rose. CoreWeave jumped 10% after-hours, Nebius rallied almost 9%, and Super Micro Computer rose 6%.
Away from AI...Japan is expected to launch a $135bn stimulus package this Friday, the largest injection since the pandemic as it hopes to help households cope with higher inflation...I think I have read this script before. Japanese bond yields keep rising with the 5- and 10-year JGB yields hitting highest since 2008 as markets brace for the stimulus; the yen weakened past 157 per dollar overnight, its lowest since January.
The Fed is divided on a December cut, minutes from its last FOMC meeting revealed. “Many” officials think interest rates do not need to be lowered further for the rest of the year, but “several” assessed a reduction could be “appropriate in December.” It’s all going to be super data dependent and we have the delayed September payrolls report today. The BLS will delay the November jobs report until after the Fed’s December meeting, clouding the policy outlook and raising odds of a hold. The October report is cancelled.
Whilst US Treasury yields have remained very steady this last week we are seeing UK gilt yields start to move out, 10yr note yields up ~10bps from 4.50% to 4.60% since Friday. Sterling has seen some fresh pressure with GBPUSD sliding steadily yesterday to the 1.3030 area where it found some tentative support after those soft CPI numbers gave the green light for a December rate cut by the Bank of England, while consensus is crystallising around the Fed holding rates next month. That has helped push the dollar firmer across the board with DXY to 100 and EURUSD to around 1.1520, a two-week low.
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