Nvidia and an AI ‘Tipping Point’ Ignites a Market Rally

An A.I. supercycle

For now, Nvidia is living up to the lofty title that Goldman Sachs bestowed on it this week — “the most important stock on planet Earth” — after its blowout earnings report.

Markets are looking up today, as are investors’ and governments’ hopes for the artificial intelligence boom, as strong demand for the chipmaker’s products suggest that there’s more room for the trend to run.

Nvidia is up 13 percent in premarket trading after results that surpassed high analyst expectations (and spurred a torrent of exuberant memes). Jensen Huang, the company’s C.E.O., said that Nvidia was seeing a “tipping point” in demand for A.I. systems.

Among the highlights:

• Nvidia’s annual revenues leaped a whopping 265 percent year-on-year to $22.1 billion. It also projected that sales this quarter would hit about $24 billion, easily outpacing forecasts of $22 billion.

• Huang told analysts that the results represent Year One of “a 10-year cycle of spreading this technology into every single industry.” Demand is so strong that Huang had to reassure analysts that they were allocating chip orders to customers “fairly.”

• One red flag: Sales fell in China, a once-vital market that has been affected by U.S. export limits on some advanced chips.

Market watchers are crediting Nvidia with turbocharging a global rally. Stocks in Asia and Europe rallied on the news, including ASML, the Dutch chips-equipment maker. Meanwhile, the Nikkei 225, a benchmark index in Japan, closed at a record that surpassed a level last seen 34 years ago as global investors continue to sell Chinese stocks in favor of Japanese shares.

Sky-high A.I. expectations go beyond stocks. Some economists have begun to speak of once-in-a-generation productivity gains delivered by the technology automating tasks, like drafting emails and proposals.

Washington is betting even bigger on A.I., too. Gina Raimondo, the commerce secretary, said yesterday that the CHIPS and Science Act, passed in 2022 to turbocharge domestic chips production with $39 billion in manufacturing incentives, would not be big enough “if we want to lead the world.”

In calling for a “CHIPS Two,” Raimondo name-checked OpenAI, a big Nvidia customer, as a tech company with a “mind boggling” need for high-end chips to run its products like ChatGPT. (Raimondo made her comments at an Intel event where that company announced a more than $15 billion deal to make customized chips, including A.I. processors, for Microsoft.)

But there is some growing skepticism about the A.I. boom. Some hedge funds have begun to reduce their holdings in Nvidia and other Magnificent Seven tech stocks before yesterday’s earnings call.

In other A.I. news:

• Google said it would temporarily suspend an image-generation feature for Gemini after the A.I. tool was found to depict some historical figures, like the founding fathers, as people of color.

• Sam Altman, the C.E.O. of OpenAI, pushed back on a report by The Wall Street Journal that his company is seeking to raise up to $7 trillion.

• Chinese companies remain highly reliant on U.S. tech to advance their A.I. ambitions.

• A quiet backer of A.I. research is Steve Schwarzman, Blackstone’s co-founder and C.E.O.

HERE’S WHAT’S HAPPENING

The Fed is in no hurry to lower borrowing costs. Minutes from the central bank’s January rate-setting meeting showed that while officials saw “significant progress” in moderating inflation, they remained cautious about lowering rates too quickly. The futures market this morning was predicting three to four rate cuts this year, down sharply from a month ago, when traders saw six to seven such moves.

Boeing replaces the head of its 737 Max program. Ed Clark, who oversaw the factory that makes the 737 Max 9, was the most prominent executive to be ousted in a leadership shake-up at the aerospace giant. The changes represent the biggest move Boeing has made yet in the wake of an episode in which a door plug on an Alaska Airlines 737 Max 9 fell off mid-flight.

An Alabama court ruling puts fertility treatments in limbo. The University of Alabama at Birmingham health system said it would pause in vitro fertilization treatments after the state’s Supreme Court ruled that frozen embryos should be considered children. There are concerns that other conservative states will follow Alabama’s lead, adding to confusion around the legality of such procedures there and driving up costs.

Nestlé warns that inflation will hurt growth. The maker of Nescafe coffee, chocolate bars and pet food sees “unprecedented inflation” sapping customers’ spending power, as its 2023 profits fell short of expectations. Earlier this month, Krispy Kreme and Heineken also warned that inflation would drive up input costs and chill sales.

Universal Music strikes a new tune

The deal this week that has had the digital media industry talking is BuzzFeed’s $108.6 million sale of Complex, the culture media publication, to Ntwrk, a livestream shopping company backed by the likes of the music impresario Jimmy Iovine.

The transaction is a further unwinding of the embattled BuzzFeed. But perhaps the most interesting angle is Universal Music Group’s investment in Ntwrk as part of the deal — and how that underscores the way that the music industry is aiming to harness new revenue streams and expand their artists’ reach.

The deal is about creating a new hub for “‘superfan’ culture,” Ntwrk said in a news release. The e-commerce company — whose founders include Iovine’s son Jamie Iovine — has worked with musical acts including Blackpink and Post Malone on commercial partnerships. Complex has long been known for its coverage of areas like hip-hop, sneaker culture and streetwear.

“I think as time has gone on, there’s been a lot of publishers who aspire to get into shopping, or a lot of commerce platforms and aspire to get into media storytelling to drive more commerce,” Aaron Levant, another Ntwrk co-founder who is the new C.E.O. of Complex, told The Hollywood Reporter.

That’s what Universal is seeking to tap into, according to John Janick, the chairman and C.E.O. of the company’s Interscope Geffen A&M label, who is joining the board of the newly combined Ntwrk and Complex. “This partnership will give our artists access to a dynamic network to deepen connections with superfans through unique collaborations and cultural moments,” he said in the release.

Lucian Grainge, Universal Music’s C.E.O., has also called for strengthening the relationship between artists and fans, including partnerships with other platforms. The company’s merchandise division, Bravado, has worked with artists like Billie Eilish and Justin Bieber to collaborate with brands.

Universal has been looking to create an updated model for its industry. That has included dealing with the proliferation of artificial intelligence and revamping streaming royalties — two reasons the company cited in pulling its music off TikTok.

“Eras”

— The code name that advisers gave to Capital One’s $35.3 billion takeover of Discover Financial, DealBook hears. It’s a reference to Taylor Swift’s blockbuster tour, which raises the question of whether executives gave one another friendship bracelets.

How the I.R.S. is supercharging a crackdown on tax cheating

Among the Biden administration’s biggest fiscal priorities was providing more funding for the I.R.S. to collect more taxes.

Armed with tens of billions in new funds allocated by the Inflation Reduction Act of 2022, the agency is starting to show off its new efforts, including going after improper use of private planes and billionaires using sophisticated tax avoidance strategies.

The I.R.S. is cracking down on corporate jet abuse by pursuing those who claimed millions in deductions on airplanes that were sometimes used for personal travel. That will begin with dozens of new audits focusing on companies, partnerships and the passengers themselves (who the agency says should report those trips as income).

Making this possible, the I.R.S. says, is the Inflation Reduction Act, which helped pay for new analytics tools. And a lot of money is at stake, according to Daniel Werfel, the agency’s commissioner: “On a given taxpayer’s tax return, the amount of the deduction for aircraft travel can be in the tens of millions of dollars,” he said.

It’s part of a broader campaign to step up enforcement. The International Consortium of Investigative Journalists took a look at the agency’s efforts to more closely scrutinize the extremely wealthy, including by:

• Using artificial intelligence tools to help map out complex partnerships that help taxpayers mask their income, something that wasn’t possible before: “We would ask for reports on partnerships, but there were only three or four people in the data unit of I.R.S. high wealth,” a former Treasury Department official told the I.C.I.J.

• More sophisticated analyses of cryptocurrencies

• Announcing the hiring of 3,700 new agents

But those efforts face headwinds, including moves by congressional Republicans to claw back the expanded I.R.S. funding, as well as actually proving these cases in court. “Enforcement has been so low for so long, there are very few people in the I.R.S. or Justice Department who have the relevant experience to actually go to trial in criminal tax cases,” Rod Rosenstein, a deputy attorney general under President Donald Trump, told the I.C.I.J.

THE SPEED READ

Deals

• Reddit is said to have signed a $60 million-a-year deal with Google that would allow the tech giant to use the social media platform’s content to train its A.I. models. (Reuters)

• Chord Energy has agreed to acquire Canada’s Enerplus for about $3.7 billion, the latest in a wave of deals in the North American oil and gas sector. (Bloomberg)

• “A Billionaire Bought a Chunk of Manchester United. Now He Has to Fix It.” (NYT)

Policy

Best of the rest

• How Instagram became an increasingly important news site even as it de-emphasizes “political content.” (NYT)

• The F.T.C. said that Twitter employees saved Elon Musk from a hefty fine for breaking data protection rules by ignoring some of his demands. (Business Insider)

• “The Ozempic Effect Gives Sweetgreen a Boost” (Bloomberg)

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