Focus shifts away from Nvidia

After a tumultuous week for the Nvidia boss and some dramatic headlines, Friday’s price action has calmed down. European indices are mildly higher, and US futures suggest that stocks will open virtually flat later today. 

The focus has switched to US inflation concerns, Treasury yields and the oil price, while, believe it or not, the S&P 500 and the Nasdaq are both on track to register their best weekly gains since August. 

Microsoft: share price drops, but market does not panic 

The market narrative has moved on from Jensen Huang and his liaisons with customers and employees, and has turned towards Microsoft. The company is experiencing the world’s biggest ever service outage, with 999 services affected. At this stage there is no suspicion of a cyber attack or malice that has caused the outage and it is instead down to ‘elevated load’, ie, too much compute is being used, which is knocking out servers and has a domino effect. 

This is the third Microsoft outage in a year, and raises questions about whether Microsoft can service its AI enhanced products. The market does not appear overly worried about the situation, although the stock price is down 3% in pre-market trading. If services are not back up and running in a quick and smooth fashion, then the sell off could get worse. 

Inflation back in focus as investors mull the possibility of a 50 bp hike from the Fed 

Oil and inflation are also back in focus today, as we wait for producer price data from the US. This has taken on greater significance since the October CPI reading, which has baked in a rate hike from the Fed in December. The focus now is on whether they hike by 25bps or 50bps. There is currently a 12% chance of a 50 bp hike, according to the CME Fedwatch tool. 

Treasuries have taken a beating this week, and the 2-year sold off by the most since 2024, which has pushed yields higher. The 2-year Treasury yield is up by more than 30 bps this week. The outcome of today’s PPI report, and any developments on the Middle East conflict over the weekend that impacts the oil price, will be a key driver of whether the market starts to increase bets of a 50 bp hike from the Fed next month, with big implications for tech stocks, the dollar and the gold price. 

Nvidia in the post-Jensen era 

Traders are greeting the post-Jensen Huang era at Nvidia with a boost for the share price. The stock is up 2% in pre market trading. Yesterday, Nvidia’s share price fell 4%, after clawing back earlier losses when the share price initially slid 13% on news that Huang had resigned. 

Nvidia’s earnings call next week will be crucial for the near term direction of the share price. While we expect another monster report and we fully expect earnings to come in above estimates of $108bn, it’s the future outlook that is more important than ever for Nvidia’s share price. 

How is the search for a new CEO going, how long will the process take and what are the implications of an official investigation into Nvidia’s relations with China? Because Jensen Huang had such centralised control at Nvidia, and because he dealt with most political relationships himself, he may be the fall guy now that it is assumed that banned exports of Nvidia’s most advanced chips got through to China. 

What are the long term implications for Nvidia’s share price 

This is bad news for Huang, as he is likely to face intense political scrutiny, especially when the Democrats take control of Congress in January. However, it is better news for Nvidia, as it could reduce some of the political risk premium that has been built into the stock price this week, and has seen it fall 13%.

However, the pressing challenge for investors is to find out how many chips the company selfless on an annual basis were indirectly sold to China? This is much harder to unravel, and we have no idea if this is a significant amount of sales. Going forward, we can assume that exports will be restricted to any country that is a known conduit for China to access banned exports, so this could affect future Nvidia revenues. This is the next major hurdle to pricing Nvidia’s stock correctly, after a rough few days.