Business
Nvidia’s future spending commitments ‘make the company’s risk profile more complex,’ Saxo says
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ONE BIG THING
Nvidia’s massive future spending commitments make its risk profile more complex, Saxo says
Charu Chanana, the chief investment strategist at Saxo, isn’t saying that Nvidia is funding a circular bubble in AI. But she isn’t totally dismissing it either, she said in a recent email to Fortune.
Nvidia’s Q2 earnings on Wednesday were stunning, lifting the entire market on Thursday. Nvidia’s stock was up 8.74% yesterday. But Chanana says the 10-Q also discloses a ton of future commitments and financing while also revealing a reduction in free cash flow, from $48.5 billion last quarter to $21.3 billion this time.
Look at the future commitments Nvidia is pumping into the AI buildout, per page 18 of its 10-Q:
- Supply and capacity commitments: $279 billion (up from $119 billion last quarter)
- Cloud service agreements: $29 billion
- Data center leases: $25 billion
- Equity investments: $25 billion
- Capex commitments: $8 billion
- All of the above totals: $366 billion
On top of that, Nvidia disclosed $56 billion in AI-cloud and third-party lease commitments, land and power guarantees of $108.5 billion, and “memorandums of understanding” with various finance providers for “more than $500 billion of third-party capital over time,” per the 10-Q.
Even if some of that is duplicative, it’s still a lot for a company that generated $96 billion in revenue in the last quarter.
Yes, Nvidia is growing fast and needs to plan. And certainly it is profitable. But, Chanana says, the future commitments “also make the company’s risk profile more complex. Investors increasingly need to consider customer credit quality, leases, guarantees, revenue-sharing agreements and Nvidia’s equity investments—not just GPU shipments. This does not automatically make the revenue circular. It does mean Nvidia is increasingly helping to create and finance the ecosystem into which it sells.”
THE MARKETS
Stocks on hold as traders wait for Warsh
The S&P 500 is back within 1% of its all-time high, boosted by Nvidia and other tech stocks. The equal-weight index actually fell yesterday, but the Nasdaq 100 countered that with a 1.43% gain. Asia was mixed today. Europe was marginally up. U.S. futures were in a holding pattern, waiting for clues about future interest rates from Fed Chairman Kevin Warsh’s speech scheduled for later today.
- S&P 500 futures were flat this morning. The index rose 0.72% yesterday.
- In Europe, the Stoxx 600 was up 0.55% in early trading and the U.K.’s FTSE 100 was up 0.2% before lunch.
- Asia: South Korea’s KOSPI was down 1.79%. Japan’s Nikkei 225 was up 0.41%. India’s Nifty 50 was up 0.1%. China’s CSI 300 was down 0.46%.
- Brent crude was $88 per barrel this morning.
- Bitcoin was at $79.4K.
Fed’s Warsh will speak today. Whether he will say anything is anyone’s guess.
Fed Chairman Kevin Warsh will make his annual Jackson Hole speech at 10 a.m. today. Given that he believes the Fed should not be guiding the markets, there is a considerable amount of head-scratching over how he will say something without saying anything. “Amidst the toasting of marshmallows at the Jackson Hole summer camp for economists, there are some hopes Federal Reserve Chair Warsh will offer a sensible structure for thinking about U.S. monetary policy,” UBS’s Paul Donovan said in an email this morning. “Warsh’s communication style, telling investors ‘you figure it out,’ is not working, creating uncertainty and introducing an unnecessary risk premium into financial markets.”
The most misleading chart in stocks: Target vs. Walmart
Over the last 12 months, Target’s stock has beaten the reasonably priced pants off Walmart, as this stock chart shows:
But timing is everything, and the last 12 months are historically aberrant. If you bet on Target before that period, especially over the last five years, you would have lost money while Walmart bulls got rich:
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MIND THE GAP
Can The Gap get it back?
The Gap’s heyday was 20 years ago, when its stores were ubiquitous and everyone wore its T-shirts and jeans. Since then, the chain has been in a seemingly never-ending turnaround phase. By the 2010s, the brand had lost its mojo, with sales plummeting and the company closing hundreds of stores. Before Richard Dickson became CEO in 2023, Gap Inc. had gone through five CEOs in five years.
There are signs that the Gap’s brand is recovering: In the first quarter of this year, its comparable sales rose 10% and have been rising for two years now. But the brand, which had sales of $3.5 billion last year (the company as a whole took in $15.4 billion), remains about half the size it was at its peak in the early 2000’s.
“I’m really fascinated with brands that had a cultural impact then lost their way. I love a good turnaround,” Dickson told Fortune’s Phil Wahba in a conversation about how the company is trying to win back our hearts and wallets.
CHART OF THE DAY
Europeans are unexpectedly upbeat, unlike their American cousins
GDP growth in the euro currency area was 0.4% in Q2, stronger than predicted. Despite two wars, a heatwave, a drought, and a blast of inflation, Europeans are surprisingly upbeat about themselves, ING’s Marieke Blom wrote recently. The White House might believe that Europe faces “civilizational erasure,” but Europeans arguably like themselves more than Americans do right now. This chart compares whether people who live in Europe feel “European” to the percentage of Americans who are proud to be American. (Let’s just ignore for a moment that these two things are not comparable!) Turns out America’s enthusiasm for itself has gone into a bit of a rut—more than 80% of Americans felt proud in 2010, but only 53% feel that way today.
NUMBER OF THE DAY: Population decline
-33%
The expected decline in the working-age population of South Korea by 2050, the biggest of all declining nations. The continent of Africa, by contrast, is forecast to grow 82%. That has huge consequences for government tax bases, EY-Parthenon Chief Economist Gregory Daco wrote recently.
“By 2050, Japan and South Korea are projected to have around 80 people aged 65 or older for every 100 working-age individuals, up from roughly 54 and 31, respectively, in 2025. The ratio is expected to approach 80 in Spain and 74 in Italy. China’s is projected to more than double, from around 22 to 47, while the increase in the United States is more moderate, from roughly 33 to 40.”
THE FRONT PAGES TODAY
Anthropic wins legal battle with Pentagon in California – FT
Iran says return to diplomacy ‘isn’t impossible’ — but all Mideast wars must end to reopen Hormuz – CNBC
Dems plan bill to counter Trump’s “Lake America” order – Axios
Corporate America Cut Big Checks to Trump. Now CEOs Fear Subpoenas Are Coming. – WSJ
Thieves Snatch $4 Million Necklace From Vienna Museum – Bloomberg
C.I.A. Chief Delivered Bleak Assessment of Russia’s War in Secretive Moscow Visit – NYT
ONE MORE THING
Despite having a net worth of $400 million, Kevin O’Leary still shops at Walmart for $29 jeans
With an estimated net worth of $400 million, Kevin O’Leary could afford never to cook, clean, or grocery shop for himself again. But the Canadian businessman and Shark Tank investor isn’t one to pass up financial savings—no matter how small, writes Fortune’s Preston Fore.
“I’m always looking for a great deal, that’s why I’m in Walmart,” he said in a recent Instagram video. “You know those fantastic black jeans I’m always wearing? That’s right—Walmart special, 29 smackaroos. That’s how you save dough.”
The 72-year-old added that his wife sent him to the store to buy some essentials, including batteries, butter, paper towels, and OxiClean laundry spray, and O’Leary didn’t want to waste the opportunity.