Finimize - 🤝 AI + Nvidia = boom.

👀 What just happened?

US

• Chipmaker Nvidia announced quarterly results that blew past investors’ expectations.

Europe

• Mining giant BHP announced its lowest annual profit in three years.
• Fresh data showed homeowners in the UK have been slashing their asking prices to sell their properties.
• Activity in the services sector – that’s retail, leisure, and “professional skills” like accounting – fell short of economists’ predictions in the UK, eurozone, and the US in August.

Asia

• Chinese internet giant Baidu announced encouraging quarterly results.

✍️ What does all this mean?

Investors’ hands were trembling this month. No surprise, given the combination of stubbornly high eurozone inflation, mounting evidence of China’s economic stuttering, and previous stronger-than-expected US economic updates that made more hikes look more likely. So they nervously retreated: in just the first three weeks of August, the US’s S&P 500, Europe’s Stoxx 600, and China’s CSI 300 collectively lost $3 trillion in value. For context, that’s equal to the UK’s entire FTSE 100.

China’s long been the world’s growth engine, so its rocky state this year is giving the global economy the shakes. Mining company BHP, for example, relies on steel-hungry Chinese construction to eat up its iron ore. So when China stepped back from the building sites, not least due to ongoing trouble in its rattled property sector, BHP was stuck with a bleeding hole in its demand funnel and deflating prices for its commodities. The result: weaker than expected earnings.

Baidu cushioned the blow, mind you. China’s answer to Google revealed its fastest rate of revenue growth in two years, partly thanks to businesses eagerly ramping up post-lockdown ad campaigns.

There’s no guarantee those ads will pay off, though. Consumer spending’s held up through escalating interest rates so far, but now that Americans have used up their pandemic savings and student loan repayments are set to resume, they may well pull back their spending on nice-to-haves. Potentially foreshadowing that was fresh data out last week, showing that activity in the services sector shrank in the UK and eurozone in August and barely grew Stateside.

Budgets are tightening in the UK too, especially for homeowners with flexible mortgages. See, British mortgage rates aren’t set in stone for as long as they are in the US. Higher interest rates, then, have a lot of homeowners looking to downsize and lock in more manageable mortgages. But with buyers short on cash too, hopeful sellers are having to slash their asking prices – and that’s pulling the market as a whole down.

🔍 This week’s focus: AI’s still powering Nvidia

Nvidia’s stock had risen almost 230% this year ahead of its second-quarter results announcement, making last week’s earnings report one of the most anticipated in recent history. And the AI-focused chipmaker didn’t disappoint: it revealed revenue 20% higher, profit 33% higher, and a sales forecast for this quarter 27% higher than analysts’ forecasts – initially sending the stock price up another 7%.

Nvidia’s recent success is a classic case of supply and demand working in a company’s favor. There aren’t enough of Nvidia’s AI chips to go around, so customers are ordering double or triple the amount they need in the hopes of getting the number they actually want. That cycle won’t last forever, it’s true. Still, investors seem confident that Nvidia’s future in the AI market is secure enough to keep the firm thriving even after supply and demand balance out.

Retail investors don’t seem as sold: one-third think AI is “overhyped” right now, which might encourage them to check out lesser-known ways to play the theme. Well, this could be one: Supermicro provides high-performance servers that run on advanced Nvidia chips – and it’s already massively benefiting from the AI wave. In Asia, companies that supply Nvidia like Ibiden, and server firms Unimicron, Shinko Electric Industries, and Kinsus could also cash in from Nvidia’s momentum.

📅 The week ahead

• Monday: Australia retail sales (July).
• Tuesday: Japan unemployment rate (July), US consumer confidence (August). Earnings: Hewlett Packard.
• Wednesday: Eurozone economic sentiment (August). Earnings: CrowdStrike, Salesforce.
• Thursday: Japan retail sales (July), eurozone inflation (August), and unemployment rate (July). Earnings: Broadcom.
• Friday: US labor market report (August), Canada economic growth (Q2).

You stay classy, Reader ✌️