May 28, 2025

QuickTakes

Nvidia Isn't Cisco

As Nvidia's stock price soared during 2024, the naysayers compared its ascent to Cisco's roundtrip performance during the Tech Bubble of the late 1990s, which was followed by the Tech Wreck of 2000 and 2001 (chart). Cisco was the tech darling of the dawning Internet Age. Nvidia is leading the way in the AI Age. Cisco crashed when the Dot.Com Bubble burst.

When DeepSeek was introduced on January 24, 2025, it was widely feared that Nvidia stock might crash if the current datacenter boom is a bubble bound to burst (chart). Instead, the company today reported a blockbuster fiscal Q1 (ended April), with revenues in its datacenter business (which makes chips and other components used in AI computing systems) surging 73% y/y to $39.1 billion. US technology giants Microsoft, Amazon, Google, and Meta all affirmed plans to boost capital spending on AI infrastructure this year in their latest earnings reports. Analysts expect combined spending by those four alone to top $345 billion this year, up 41% from last year.

We've observed that demand for more datacenter capacity is actually driven by robust demand for more cloud computing. AI is certainly contributing to that demand, but the main driver is the Digital Revolution that started in the mid-1960s. The revolution is all about processing more data, more rapidly, and more cheaply. This process feeds on itself.

On a more downbeat note, CNBC posted an article today titled "The rest of the world is trouncing the U.S. stock market. Why that could continue." On a ytd-basis and in US dollars, the US MSCI stock price index is up just 0.7%, while numerous other stock markets around the world are up with double-digit gains (chart).

We did back off somewhat from our Stay Home investment strategy earlier this year, as global investors feared that Trump's Tariff Turmoil (TTT) might cause a recession in the US. They had been mostly overweighted with US assets, and they rebalanced to cheaper stock markets around the world. We aren't convinced that Go Global is starting to sustainably outperform Stay Home. The ratio of the latter to the former remains on the uptrend that started in 2010 (chart).

While the US economy remains resilient, we do expect a stagflationary patch during the summer months. That's confirmed by May's regional business surveys conducted by five of the 12 Federal Reserve district banks (chart). They suggest that manufacturing remains relatively stagnant (chart).

The regional business surveys also suggest that consumer price inflation will soon rise modestly, reflecting the impact of TTT in disrupting supply chains and boosting costs (chart).

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