Nvidia's newsroom account posted about Google's momentum yesterday on X.
The company saying it's delighted by Google's success, but Nvidia says it's a generation ahead of the industry.
And speaking of Google Alphabets up 20% in the past month with all eyes on Gemini 3.
Google is stepping up its challenge to Nvidia in the AI chip race as its custom tensor processing units gain new customers.
Nvidia still dominates with its GPUs, but Google's more energy efficiency.
TPUs are emerging as a serious threat.
Joining me this morning is Matt Orton, chief market strategist for Raymond James Investment Management.
Matt, great to have you here.
Good morning.
Thanks for joining us.
So I initially rose after its blowout 3rd quarter earnings last week.
Its data center revenue hit a record over $51 billion but the stock closed yesterday down 7% in the past month.
So take us through what you see as the shifting sands of the AI trade.
So good morning, Ray.
It's great to join, and I think invidious earnings and really what we heard from all of the hyper scalers over the past month, is that the demand for artificial intelligence is incredibly strong and that we're going to continue to see spending going forward.
I think the reaction that you saw to Nvidia share prices a response to Alphabet, a lot of that is, I think, just positioning on the margin, perhaps a little bit of investor uncertainty, just given how large Nvidia has grown within the market.
And perhaps questioning whether the earnings growth forecasts they have for 2028, 2029 that are justifying the valuation longer term are still accurate.
But given how much money is being spent on this trade, I think there's room for multiple winners, at least in the short to medium term, and I'm Not concerned by it.
It's certainly encouraging to see Alphabet provide something strong in another compelling case, which should only increase the competition going forward, which is great for the ecosystem as a whole.
So I'm still optimistic and look to buy dips in some of these high quality companies when the market gives you that opportunity.
And while I have you here, I do want to zoom out.
So the major US stock averages are up double digit percentages year to date, but the AI trade has played a big part in that.
And I understand that you're also looking overseas for value.
So what is the most compelling international play right now?
The international markets for me have been quite strong this year.
The emerging market complex has actually significantly outperformed US, followed by developed international markets.
And so when I look at the ecosystem, I think some of the markets that have done well, like South Korea, Taiwan that are very lever toward semiconductors, while they can continue to do well, I'm looking more at markets like Japan in the Asia complex because The Japanese markets are levered towards the implementation of AI.
They're at the forefront of manufacturing robotics that are industrial in nature, used for factories.
They're levered towards equipment, automobiles, a lot of areas where we're seeing demand start to come back.
And so I like that market, especially with a weaker yen that should help their exporting companies.
And then I'm also looking at countries like India within the emerging market complex.
It has significantly underperformed the broader EM complex, but you have GDP growth at 7% with a very diversified and growing middle class consumer.
Their market strength, I think, is going to come back next year, and there's a lot of really compelling opportunities to look at that don't relate to artificial intelligence.
So it's a very nice compliment to say growthier type of portfolio that's focused on the US.
Yeah, and I'm glad that you bring that up because when we look at the year to date gains across the major stock averages in terms of geography, in terms of Japan and India, we are seeing single digit percentage gains year to date compared to other areas, but I do want to get your Take on market breath while we have you here.
So we are seeing strength across some of the mega cap complex.
So last week the equal weighted S&P 500 gapping below its October 10th low.
So what are you actually seeing when you look under the hood here?
So at least up until the end of last week, breath was a concern of mine, and I still think weak breathrey is a risk to the overall market that we need to monitor, but we are seeing strength and rotation into other sectors like healthcare, where there is tangible earnings growth and a strong fundamental story to believe that that's going to be sustainable over the longer term.
The consumer part of the overall market is a little bit more challenged because fundamentals are rockier.
What I would like to see going forward to really get enthusiastic about expanding breadth and the strength and durability of the AI trade is to see earnings start to deliver across more sectors.
And I think we're starting to see that earnings bread during Q3 was the strongest we had since 2021.
So that's a really good positive for the overall market.
And I think if we can see that play out again in the fourth quarter and get good guidance from a wider breadth of companies across the economy and market, I think that sends a very strong signal to the fact that the US market can continue to print very strong returns into 2026, which is my base case expectation.
I'm still optimistic.
And really looking for high quality growth opportunities to rotate and complement my core exposure that's a little bit more geared towards industrials and information technology that are more centered around artificial intelligence.
And Matt, it's hard to believe, but only 14 days to go until the next Fed meeting taking place in December, and backlogged economic data releases are finally starting to roll out.
And right now the odds of a December rate cut have jumped above 80% in terms of a 25 basis point rate cut.
So later on this afternoon we will be getting the Fed's beige books.
So take us through the macro factors that you're keeping a close eye on.
Yeah, it's hard to believe that we're almost coming into the end of the year right now, but a lot of the macro factors to look at are concerned around jobs and inflation.
So what we want to see, and I think with the Beige Book and the Federal Reserve officials are going to be looking very closely at.
Is what sort of weakness are you seeing at a more regional level across different economies in this country?
Is the weakness we're seeing from some of these big headline rate job reductions for larger tech companies?
Is that playing out at a more broad-based level?
Are we seeing that happen to smaller companies and smaller businesses?
Because if that is the case, I think it strengthens the rationale for a December rate cut.
If on the other hand it looks fairly strong that jobs growth doesn't seem to have as many cracks as we might forecast, I do think it becomes a little bit of a closer call for December.
My base case is still that we're going to see that 25 basis point rate cut in December, but we're probably going to get the tightest margin around that.
It's probably going to be a 7 to 5 vote, uh, so we need to look at to see what those dissenters need to see going.
Forward to 26 to justify where those longer term rate cut expectations are going, and I think that will be the key to driving rates in the short term, but economic strengthre me, I think, is still here.
The US is still growing above trend and again that at the end of the day is what's important.
It lets the consumer continue to spend, and that's why I think we can be optimistic about the market going into 2026.
Well, thank you so much for joining us this morning and thank you so much for sharing all of your insights as well as perspective from everyone here, we wish you a safe and happy Thanksgiving holiday weekend.
You too, thank you.
