Midweek Macro Note 8/27: Data Centers Slowing, Nvidia Report Puts AI Trade on Notice, Home Prices Cool, Resilient Bubble at 'Jaws of Kyoto'

In this Midweek Macro Note - we dive into the slowing in data center construction growth - reflected in Nvidia's earnings today, discuss the AI trade on notice, talk the 'bubble', and more.

Good Wednesday evening MacroEdge Readers and Community, 

Today we’re going to dive into the Nvidia warning signs even in the face of another beat (most notably, significant Q/Q slowing of growth in the data center segment), talk about home prices, active single-family construction, this resilient bubble, and much more… 

Let’s dive in. 

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Data Center Bubble – Nvidia Puts AI Trade on Notice 

For a second report in a row, and notably in this report, the hype after the earnings report was one of a much more tepid nature. While Nvidia beat on rev & EPS, there were some red flags in the slowing of growth from this unsustainable pace. The ‘AI slop’ environment, coupled with warning after warning from Sam Altman, Meta culling its AI hiring, and other ‘small’, yet noticeable flags about the very obvious bubble in the space warrant further investigation. 

Nvidia’s latest data center revenue came in at about $41.1 billion, still up sharply year over year, but it fell short of the Street’s target. That shortfall raised immediate concern as investors questioned whether demand in the most critical growth engine is showing cracks This miss in data centers is a red flag in the middle of a storm of strosopheric valuations, a sharp reminder that hype alone will never pay the bills.

Single Family Construction Continues to Decline - Home Prices Cool, Too

With a continued shock with the fact that single family residential construction employment continues to remain solid (some cracks have appeared since January) the Administration is eager to unlock capital in this space and get the free money flowing. 

Home price growth has stalled: 

Recalling our forecast from December 2024, makes us not look like the crazies, after all… 

A Resilient Bubble Faces a Crossroads at the ‘Jaws of Kyoto’

With the market trading back at its second most expensive level in US market history, and with market concentration remaining crazy for both the top single names, and top 10 equities – the story remains one of risk. We’re at a crossroads now between a crash up in equity prices, and just the opposite - if volatility comes alive, along with either a combination of higher CPI, unemployment, or both.