Markets rally to all-time highs on Fed

This week the Federal Reserve met and decided that they would keep interest rates at the current level. What is more important is that they indicated that they still forecasted 3 rate cuts this year. The market had been nervous that they would decrease their expectations for rate cuts, and given the news, stocks rallied to all-time highs. The Dow, S&P 500, and NASDAQ all made highs following the news. The small-cap Russell 2000 is still not at all-time highs but made significant progress.

• Whether the Fed cuts 3 times or 2 does not matter as much as that the Fed signaled its continued intent to cut rates
• We believe the important thing is the future direction of interest rates rather than the number of cuts
• As stocks are the present value of their future cash flows, lower interest rates mean higher valuations
• Since inflation continues to be relatively in check, and unemployment beginning to show signs of weakness, it would make sense for the Fed to ease interest rates
• If nothing changes, this should continue to be a tailwind for stocks, and the rally should broaden to underperforming areas

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NVidia continues to drive innovation

This week Nvidia (NVDA) announced their latest generation of chips, leading to a continued rally in the stock. NVDA announced the Blackwell B200 chip, which is the next version of their H100 chip, which was used to train the current iteration of LLMs. This includes ChatGPT 4, Gemini, Claude and others. They also announced the GB200, which they claim will have 30x performance for server farms that run LLMs. In addition, they announced a foundation model for controlling humanoid robots called GRoot.

• NVDA continues to show they are a step ahead of the innovation happening in the world of artificial intelligence
• As discussed before, every company is currently working on its LLM technology, and in order to be able to do so needs NVDA chips
• Thus far, NVDA has correctly anticipated the need for more and more “compute” as these LLMs become bigger and more complicated
• They have also done a good job of anticipating the next stage of this evolution, which will likely spread to robotics
• This reminds us of the famous statement from Marc Andreesen in 2011 when he stated that “software is eating the world”
• He was referring to the evolution from the early stages of the internet, built on hardware like simple processing chips, switches, and routers, to software unlocking the next level of value
• We think this is the next step in the evolution of technology, where LLMs, powered by chips like those made by NVDA, will drive the next level of value

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Apple faces serious DOJ lawsuit

The Justice Department launched a sweeping lawsuit against Apple, accusing it of engineering an illegal monopoly in smartphones. The DOJ claims Apple boxes out competitors, stifles innovation, and keeps prices artificially high for consumers. It also claims Apple’s ecosystem is designed to “extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others.”

• This is a serious lawsuit and will serve as a distraction for years to come
• It reminds us of the massive anti-trust lawsuits versus Microsoft that were launched in 1998
• For Microsoft, years of battles with the government followed, during which the company failed to innovate and missed several trends, most notably mobile and the cloud
• As Mark Twain once said, “History doesn't repeat, but it rhymes,” and it’s worth considering the parallels here
• On the other hand, Apple will argue that they design beautiful products with great user experiences and need to have more control of their ecosystem is one of the ways they are able to do so
• However, many have argued Apple is already behind in AI, which was highlighted by reports they recently had discussions with Google to use its Gemini model

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