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I’ll start with a look at NVDAs earnings as they came in in line with yesterdays analysis, there was no sell-off despite the beat and LITE and COHR I mentioned are up double digits..
NVDA’s CFO was very clear: “We are experiencing extreme pricing conditions in memory. The magnitude of the price increase has exceeded our prior expectations and is headed even higher into next year.”
https://preview.redd.it/i72r34pqlwlh1.png?width=1080&format=png&auto=webp&s=bc4710b73591e406d375f10497de01c77b561dab
This connects to the memory trade as Nvidia’s supply commitments absolutely exploded from $119bn to $279bn in a single quarter... Management said the majority of that increase is related to memory being secured for the Vera Rubin ramp - in other words, the largest HBM buyer in the world is effectively pre-paying to secure supply through 2027.
You can already see the cost of that shortage in margins as NVDA guided gross margins to around 74% next quarter and 71–72% in Q4, largely because of higher memory costs, before expecting them to stabilize in FY28.
This is also exactly why the 15%+ server price increases were annouinced this week as Nvidia is willing to absorb some of the memory inflation through margins initially, but a meaningful portion of that cost is ultimately being passed through to customers.
Vera Rubin is now in full production, with racks already running at CoreWeave, Azure, Google Cloud, Oracle and Nebius, while purchase orders are coming from essentially every major hyperscaler, AI cloud provider and OEM.
They expect this to be the fastest product ramp in Nvidia’s history, with Vera Rubin already expected to account for roughly 20% of data-centre revenue next quarter.
Add to that an expanded AWS agreement, Spectrum-X networking revenue up 2.6x YoY, and Vera CPU revenue expected to more than double next fiscal year, and there is very little evidence of AI infrastructure demand slowing.
So basically not only that AI demand remains extremely strong but we got another confirmation that the memory bottleneck is becoming one of the most important constraints on the entire AI infrastructure buildout.
On to inflation..
PCE is still running hotter than CPI, but much of that looks mechanical and not a genuine acceleration in underlying inflation because as I mentioned yesterday, portfolio-management fees are a big part of the problem.. They sit inside financial services and are heavily influenced by equity-market performance, so a strong stock market can mechanically show up as hotter PCE inflation even though consumers are not really seeing the same pressure at the checkout.
Add in PPI-fed healthcare categories and the fact that PCE gives much less weight to shelter than CPI, and you get a record-wide CPI-PCE spread and I still think CPI is leading the direction here and PCE is simply lagging, which means PCE is more likely to converge lower than CPI is to re-accelerate higher.
None of this really changes the September Fed expectaytions as markets are still pricing roughly a 40% probability of a hike, which continues to look too high to meFflat consumer spending adds to the recent run of softer than expected activity data and gives the Fed another reason not to rush into further tightening.
Speaking of the Fed, At the July FOMC press conference, Warsh described Jackson Hole as a “blank piece of paper,” saying he had not yet decided whether to use the speech as a traditional autumn policy setup or focus on broader structural themes such as productivity, demographics and the global economy.
All in all, I expect him to lean more dovish than hawkish, but without explicitly signalling September. The dovish part is more likely to come through an acknowledgement that higher real yields and tighter financial conditions are already doing some of the Fed’s work, rather than through any direct change in the policy outlook.
On a side note, nice to see JPM finally catch up to our thesis about the short squeeze in bonds which I first mentioned on Friday I think..
https://preview.redd.it/px8chryrlwlh1.png?width=1080&format=png&auto=webp&s=f31d8a741f9464a8fd782a1b893780748581c20a
On to the positoning charts - SPYs rally was halted almost exactly at the $770 resistance I highlighted yesterday and what’s important, though, is that positioning underneath the market is becoming increasingly bullish again.
SPY is effectively coiling just below resistance, and the setup continues to favour another move higher we may simply need a catalyst like Warsh’s Jackson Hole keynote tomorrow to fuel momentum
https://preview.redd.it/kjrpcn0ulwlh1.png?width=756&format=png&auto=webp&s=a4b4ec9c9d4576d2fc2421a1c230de858f5982b8
QQQ has a very similar setup. The rally took a breather almost exactly at $720, but underneath the surface the positioning continues to improve as market makers also have now shifted into more of a buy-the-dip regime, meaning a pullback should increasingly attract supportive dealer flows rather than amplify downside.
That makes the downside better supported while the probability of another push higher continues to build.
https://preview.redd.it/3yobkiwulwlh1.png?width=745&format=png&auto=webp&s=1e7771ca1ae2786bdd32677b495575bfcef49762
As I started the analysis with memory, the DRAM etf is testing the massive resistance at $60 which is now likely to fall fuelling a rally higher.
https://preview.redd.it/2m5l9govlwlh1.png?width=736&format=png&auto=webp&s=7f98495baea6a29690591b5198d1dac4e26293e8
On the SOXX - I have executed a long targeting $550