Yet somehow, it still wasn’t enough. The stock swung 2–3% in both directions in after-hours trading before settling around 1% lower. Some blamed the May-to-July outlook for not being strong enough. Others pointed to confusion around Nvidia’s new reporting structure. But honestly, this looked more like simple profit-taking after an enormous rally than lack of conviction.

I wrote in yesterday’s note that Nvidia earnings no longer carry the same market-moving power they did at the beginning of the AI frenzy. In the early days, GPUs were the story because training AI models required immense computing power. But now that these models are increasingly being deployed and used in the real world, the narrative is broadening. Demand for CPUs and memory chips has surged alongside GPUs, allowing other chipmakers to capture a bigger share of the AI spotlight.

In that sense, Nvidia is no longer the sole barometer of AI enthusiasm. And Nvidia knows it and is not resting on its laurels. The company announced yesterday that it will change the way it presents its business to investors, as AI is no longer just about selling chips to hyperscalers and cloud giants building massive data centres.

Nvidia now wants investors to focus on what comes next: AI spreading into the real economy. That’s why it introduced a separate “Edge Computing” category, covering robotics, autonomous driving, AI-powered PCs, telecom infrastructure and devices processing AI outside giant data centres.

In other words, Nvidia is making a big bet on “physical AI” — machines, robots, vehicles and connected devices interacting with the real world. It’s basically Jensen Huang saying that the next phase of AI won’t just live in the cloud — it will live everywhere around us. Ta daa.

So Nvidia’s earnings announcement may have triggered little enthusiasm in its own stock, but LG Electronics rose 26% in Korea and Hyundai Mobis surged more than 21%. If we stay in Korea, Samsung jumped more than 7% after averting a strike, helping push the Kospi index higher today. Beyond the chipmakers, AI enthusiasm continues with Elon Musk’s SpaceX reportedly preparing for an IPO. OpenAI and Anthropic are also expected to go public before the end of the year. Exciting.

Mind the gap!

What’s less exciting is the macro backdrop. Oil dropped 5% yesterday after Donald Trump said they were finalizing a deal with Iran. But if history is any guide, we’ve heard that before. Global yields are pushing to multi-decade highs.

So if you look at the bigger picture, the story is somewhat different. The tech-heavy market indices are diverging notably from their equal-weighted versions, warning that the market rally is being built on the shoulders of a handful of tech companies that are priced to perfection, and that every step higher feels more like greed than conviction, unless the market breadth broadens. For that, the macroeconomic backdrop should improve – war ends, energy prices fall, yields drop.

Alas, the major European and US indices are flat this morning, looking more down to earth than the Asian indices, which enjoyed a nice rally this Thursday.

Oil and inflation

Now, of course, the longer this situation drags on, the bigger the consequences.

Oil bears yesterday — blinded by Trump’s hopeful but one-sided comments — totally ignored the data showing that US oil inventories — commercial and SPR combined — fell by 17.8 million barrels last week, reportedly the largest weekly decline since records began in 1982. That means that if history repeats itself, and if a peace deal doesn’t materialize, the recent easing in oil prices will likely remain short-lived. Prices could spike again and continue fueling inflation expectations.

Speaking of inflation, yesterday’s data confirmed that inflation in the euro area jumped to 3% in April — on the back of rising energy prices — while British consumer inflation came in softer than expected, easing to the slowest pace in more than a year.

But wait, the latter was due to two major factors: government measures to ease energy bills, and favourable base effects from last April, when inflation in the UK spiked on taxes and utility costs. The good news is that yesterday’s data is now expected to justify no hike from the Bank of England (BoE) at its next meeting — the probability of a BoE hike fell from around 50% last week to below 20% after the inflation data, pulling the 10-year gilt yield below 5%.

The bad news is that inflation in the UK will likely rise again — just look at the PPI numbers, which reflect the energy crisis quite strongly — and that will bring the uncomfortable question of higher rates back onto the table sooner rather than later.

I would expect Cable to remain under pressure. Another retreat toward 1.32 looks more likely than a rise above 1.37. But in the end, the US dollar will have the final say. And its trajectory is highly dependent on Middle East developments and oil prices. Expensive oil and rising inflation expectations continue to support the dollar.

Published yesterday, the FOMC minutes showed that a majority of officials considered raising rates if inflation continues to run above the 2% target, and called for the Federal Reserve (Fed) to drop its easing bias and say clearly that the next move could well be a rate hike. Indeed, activity on Fed futures now prices in more than a 50% chance of a December hike.

That could rapidly change, of course, if Middle East tensions ease and oil prices fall back toward the $60–70pb range where they traded before the war started — levels that pointed to a Fed cut this year. But until then, the chances that the Fed may have to consider another rate hike are rising by the day.