Nvidia meh, what next?

A shortened holiday week saw most American stock markets drift lower amid light trading volumes, although not before the bellwether S&P500 large cap index touched the 6,500 level for the first time in history. Small cap stocks outperformed large cap stocks for the third week in a row, ostensibly on a combination of wide valuation discounts and hopes that interest rate cuts should ease some of the financial stress weighing heavily on weaker balance sheets.

The prevailing market narrative has changed little since the early April 2025 lows. That is that investors are increasingly confident that a combination of; a) easing monetary policy and, b) continuation of the AI narrative that has powered a handful of stocks to stratospheric levels, will more than offset persistent geopolitical and economic concerns.

In terms of corporate news, all eyes were fixed firmly on market darling Nvidia, the picks and shovels play of the artificial intelligence (AI) story and 8% of the S&P500 index. The quarterly earnings release and accompanying statements from the C-suite have become as important to market watchers as a major macro event; such is the level of interest and hype surrounding the company’s prospects.

At a high level, the result was a staggering $47 billion of revenue generation in the quarter, representing +56% growth, and earnings per share of $1.05 representing +54% growth on a year-on-year basis. The numbers were accompanied by soothing tones from CEO Jensen Huang, who described AI infrastructure as entering ‘a new industrial revolution’, and demand for the company’s latest Blackwell chip as ‘extraordinary’. All taken, the sum-of-the-parts was enough to prevent a sharp price move reaction in either direction.

In the short-term, the Nvidia earnings call along with the expansion of gargantuan capital expenditure programmes by the largest mega cap companies (e.g. Microsoft, Amazon, and Alphabet) have been enough for the market to give the AI story the continued benefit of the doubt. In the long-term, the answer to the question of whether these companies can effectively monetise their capex investment programmes is likely to determine the winners and losers of the next market cycle.

Winner of the most precarious current G7 financial situation is, arguably, France, which faces a new political crisis as the minority government of François Bayrou looks set to lose a confidence vote next week amid deep divisions over his plan to push through a €44 billion package of tax increases and spending cuts to reduce the highest budget deficit in the eurozone.

Parliamentary members from both sides of the political spectrum oppose the austerity package in its current form, which also includes slashing two of France’s public holidays, and should Bayrou lose the vote, he is expected to resign, creating more uncertainty.

Investors have reacted to the turmoil by selling French stocks and bonds, raising the borrowing costs for the government. It now pays more than Greece and Italy to issue 5-year government bonds. Although Italy has a much higher overall debt burden, it is benefitting from a period of political stability which has enabled Giorgia Meloni’s administration to act with fiscal restraint its budget deficit is set to fall to 2.8% of GDP next year, below the EU’s 3% ceiling.

Meanwhile, closer to home, an extraordinary headline from the Daily Telegraph proclaiming that Britain is ‘heading towards an IMF bailout’. The situation is dire. Record high borrowing costs, stubborn inflation, stagnant growth, and ballooning deficits are eroding market confidence. With national debt over 100% of GDP and fiscal flexibility dwindling, Treasury officials face a precarious autumn budget, sparking comparisons to the 1976 IMF crisis. More seasoned investors will recall James Callaghan pleading cap-in-hand for a record £3.9 billion loan, the largest ever at the time.

Against this backdrop, little surprise to see precious metals, led by physical gold (+3.3%) and silver (+5.5%), remaining well bid on the week. Silver has, relatively quietly, broken out to fresh fourteen-year highs.

Turning to the week ahead, the key macro release is likely be the highly anticipated US August jobs report on Friday. With rate cut(s) now seemingly in the bag, any negative surprise (stronger than expected data) would likely be received poorly. On the corporate front, Broadcom and Salesforce report quarterly earnings. Both are considered bellwethers for AI sector momentum. Finally, American domestic affairs will remain in the spotlight following Fed Governor Cook’s lawsuit against President Trump, declaring her recent dismissal ‘unlawful and void’. The show goes on!