May 24, 2024 | Read Online

Byron Gilliam

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"The next industrial revolution has begun."

- Jensen Huang

Friday Unprecedented Charts

Nvidia continues to do things that big companies should not be able to do.

The $26 billion of Q1 revenue they reported this week is up 20-fold from just ten years ago.

The $14.9 billion of net profit they reported is up tenfold from just two years ago.

The unprecedented results pushed Nvidia's stock price above $1,000 for the first time — with its market capitalization above $2.5 trillion, Nvidia is now 20x more valuable than its old rival, Intel.

The rest of the market traded down on Nvidia day, however, and that was also unprecedented: The S&P had never finished lower on a day when one of its biggest components was up at least 9%, according to 3F Research.

That's because this week's news, away from Nvidia, was also good — so much so that we're back to good news for the economy being bad news for the stock market.

Wednesday's FOMC minutes showed that several members are worried the US economy is running too hot, and PMI data on Thursday seemed to confirm it.

While Wall Street is worried about things being good, however, Main Street is worried about things being bad.

A poll released this week found that a majority of Americans (55%) think the US economy is in recession (it's not), 49% think the stock market is down (it's up), and — best of all — 49% think unemployment is at a 50-year high (it's near a 50-year low).

How to explain the discrepancy?

Maybe Main Street is getting bad answers from their Nvidia-trained AI chat bots — because they do still have a tendency to hallucinate things with sometimes funny, sometimes dangerous results (or both, as in the case of recommending glue as a pizza topping).

The AI bots will have to get a lot sharper for Huang's new industrial revolution to really kick in, and it's still early on that front — Anthropic announced this week that they're only now starting to understand how their AI models even work.

So it might be a while before Nvidia and AI make us smart enough to know that stocks are up, not down, and that unemployment is down, not up.

In the meantime, we'll have to figure that stuff out for ourselves.

Let's check the charts.

Scarily good:

It doesn't look like much in chart form, but that little uptick in manufacturing output is behind the S&P's assessment that "US business activity growth accelerated sharply to its fastest for just over two years." The economy has defied expectations by staying good and now it may even be getting better.

50-year LOWS:

Initial jobless claims fell to 215,000 this week, which is at the very low end of the historic range. The chart above shows the pre-pandemic history of jobless claims — before 2019, you have to go back to the 1960s to get jobless claims this low (before anyone could have imagined that "meme manager" would be an $85,000 a year job).

Can't go below zero:

US office construction has fallen to basically zero and, despite the many warnings that a commercial real estate recession would tip the whole economy into recession, nothing seems to have broken. We've been waiting for the US economy to land, but if it can weather these localized recessions, it might not have to.

This one can't go above 100:

Nearly every S&P 500 company mentioned AI in their most recent quarterly earnings reports.

It's a spend-money-to-make-money kind of market:

A basket of the 50 S&P 500 stocks that spent the most on capital expenditures rose 5.4% over the past month, while a basket of the 50 that spent the least rose just 1.6% — a 96th percentile differential, per Goldman Sachs.

Everyone's capex is Nvidia's revenue:

Not literally everyone's, but enough so that NVDA share price has gone up 10x and the shares have gotten cheaper. NVDA's NTM (next twelve months) P/E of 38x is 13% below its historical average.

NVDA minting millionaires:

The number of $1 million+ 401k accounts held just at Fidelity is nearing 500,000. Being passively invested in Nvidia (and its customers) is a big part of why.

To recap: Things are good even though everyone thinks they're bad, and if Jensen Huang is right, they're about to get a lot better.

If you happen to know any of the 55% of Americans who think otherwise, please forward them this email.

Have a great weekend, unprecedented readers.

(P.S. I'm making my first-ever trip to Japan next week. If anyone has any Tokyo food tips for me or knows any crypto people I should talk to, please share: byron@blockworks.co.)

― Byron Gilliam

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DWF Ventures @DWFVentures

With @nvidia earnings coming in hot yesterday, it is clear that demand for compute is higher than ever. Attention is turning towards AI x Crypto projects, ushering in a new realm of incentivisation for AI.

Here's an overview of the current landscape 🧵