The S&P 500 gained 29 points on Monday – closing at a new high, just a few points shy of 6700.
More stocks were lower than higher for the session, which has become a recent trend. Technology stocks led the way higher.
The news that sparked the afternoon buying binge in all-things-technology-related was NVDA’s announcement it would “invest up to $100 billion in Open AI.”
Details of the “investment” were vague. But, that didn’t matter. All the algorithms had to hear was “$100 billion” and computers everywhere went into “buy mode.”
We were told the $100 billion investment would be so that Open AI could buy NVDA chips. In other words, NVDA is giving money to Open AI so that Open AI can turn around and give it back to NVDA in exchange for chips.
This sort of arrangement should raise the eyebrows of anyone who was around during the dot-com mania in 2000.
Back then, companies like Lucent made similar deals with cash-poor but potential-rich internet companies. The internet companies could then say, “See… we have the backing of one of the biggest players in the business.” And, Lucent could report record sales and earnings fueled by its own money buying its own products and services.
Everyone’s shares would go higher. Until one day… well… you know the end of the story.
Most of those internet companies aren’t around anymore. And Lucent, which traded as high as a split-adjusted $84 per share in 2000, was acquired for $0.56 per share in 2002.
Of course, I’m not suggesting that NVDA and Open AI are headed down the same path. I am suggesting that these sorts of announcements, and these sorts of deals, are the sorts of gimmicks that occur during a speculative bubble.
In just the past week or so, Open AI has announced a multibillion-dollar deal with Broadcom, a $300 billion deal with ORCL, and yesterday’s announcement with NVDA. Last week, META announced it would spend $600 billion to build out AI infrastructure.
At some point we’re talking about real money. And maybe a reasonable question to ask is, “Where is this money coming from?”
If it’s actual money, actually being invested, then is it being taken from a productive project to now be invested in what is at least a short-term unproductive project?
Or… is it not actually money but rather an accounting shift that lets these companies keep the party going a while longer?
Just something to think about…
Best regards and good trading,
Jeff Clark
Editor, Market Minute
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