AI Trade Under Scrutiny as Nvidia Reports Earnings and Warsh Delivers Fed Keynote
The AI trade is facing a crucial week as Nvidia releases its financial results tomorrow and Kevin Warsh delivers his first keynote as Fed Chair on Friday. This has led to increased scrutiny of the AI sector, with some analysts suggesting that investors are rotating out of AI-related stocks.
According to Bloomberg's data, the 40-day correlation between a Goldman Sachs broad AI basket and the S&P 500 excluding AI has swung to roughly -0.6, indicating a significant rotation away from AI. Meanwhile, semiconductor and data-center names have been deeply in the red over the past five trading days.
However, the market still sees value in the AI thesis, with Anthropic's latest revenue topping USD 11.6 bn in 2Q against OpenAI's roughly USD 6.7 bn. Meanwhile, Anthropic's annualized revenue run rate topped USD 65 bn compared to about USD 40 bn for OpenAI.
The slower fuse of yields is also a concern, with US public debt hitting a record USD 40 tn this week and long bond yields at 19-year highs. This has led some analysts to suggest that the Fed's communication strategy may be driving a loss of credibility, with former Boston Fed president Eric Rosengren stating 'The communication strategy is driving a loss of Fed credibility.'