Finimize - 💵 Nvidia aced it

What’s going on here?

Nvidia, the AI chipmaker, reported results that blew past expectations on Wednesday – and investors lost no time snapping up its stock.

What does this mean?

Nvidia’s first-quarter results weren’t just good, they were a whole “hold my beer” moment for the tech world. And while revenue – which outdid predictions across all divisions – was impressive enough, it was Nvidia’s guidance that really stole the show: the firm forecast second-quarter revenue of $11 billion, a whopping 40% more than Wall Street wizards were expecting. It looks like that success is being driven mainly by Nvidia’s data center business, which produces the high-tech chips that are fueling the AI revolution. Unsurprisingly, these results had shareholders dancing in the streets – sending shares up by an astounding 26% after the market closed.

Why should I care?

For markets: Blue-sky valuation.

Investors might balk at Nvidia’s staggering valuation, but supercharged growth stocks can require a touch of imagination: after all, Nvidia’s hitched its wagon firmly to the AI star, so it’s hard to imagine a limit to its opportunity. That’s put the firm in a bit of a sweet spot, because its almost unimaginable future has given it an almost unimaginably expensive valuation to boot. And sure, a reality check could easily bring those lofty imaginings back to earth – but for now, Nvidia’s cruising high on the strength of its promising potential.

The bigger picture: A many-horse race.

Nvidia’s emerging as the godfather of AI, but other chipmakers are bound to want a piece of the action sooner or later. And while that’s unlikely to see Nvidia swimming with the fishes – the AI market is likely big enough for more than one tech titan, after all – investors should look over their shoulders for any other up-and-coming capo dei capi too.

What’s going on here?

Data out on Thursday showed that Germany, the industrial titan of Europe, belly-flopped into a recession last quarter.

What does this mean?

Germany’s economy shrank by 0.5% in the last quarter of 2022, so when reports for the first quarter of this year showed zero growth, economists heaved a sigh of relief. See, stagnation isn’t pretty, but it’s better than the true bogeyman – a “technical recession”, when an economy shrinks for two straight quarters. But there’s been a plot twist: revised figures just revealed a 0.3% contraction in the first quarter of this year. Cue the dramatic music – because that means Germany’s in its first recession since the pandemic.

The main culprit was household consumption, with spending on everything from food to finery taking a nosedive as consumers tightened their belts. But even in other areas, the writing was on the wall: after all, indicators for the all-important manufacturing sector have been flashing red for some time now.

Why should I care?

The bigger picture: The worst is yet to come.

This isn’t just a short-term hiccup for Germany. The country’s firms are already catching a chill, with business confidence slipping for the first time in seven months in May – and the IMF’s tipped Germany to emerge as the worst-performing big economy this year. With a series of rate hikes on the horizon too, households and businesses are set for an even tighter squeeze. That’s bad news for the eurozone: as the biggest economy in the bloc sinks, the rest of the crew could be dragged down with it.

Zooming out: Misery will have company.

The US is expected to join the recession club by the second half of the year – with the debt limit debacle only adding to its woes. See, that situation’s essentially a lose-lose: a prolonged political standoff would hurt the economy, but any deal will probably come with spending cuts that’ll do serious economic damage too.