Client Update - 21st November 2025

Back to the markets this week and I will start with Nvidia, whose sales of microchips at the heart of the artificial intelligence boom in the last quarter rose even faster than Wall Street anticipated. The world’s most valuable company reported its revenue rose 62% year on year to $57bn in the three months to the end of October, beating consensus estimates. Nvidia’s revenue forecast for the current quarter was $65bn, about $3bn more than Wall Street expected.

Having had a recent wobble based on concerns over AI valuations, stock markets quickly bounced based on this better-than-expected news. Although this did not last – more on that later. As I have written before, Microsoft, Amazon, Google, Meta, and so on have been spending billions of dollars on their AI development and whilst this is mostly from the huge cash balance they have, the question remains - how long will it take before those AI investments pay off? And how can we evaluate the impact of the switch from a capex-light business model to a capex-heavy one?

Nvidia, the symbol of triumphant AI and the first company to reach a market cap of over $5 trillion, is the happy supplier of said chips to the Magnificent 7 hyperscalers who still have deep pockets. Imagine it like this - the company is supplying shovels and sieves to the major gold panners in the AI rush and is trading at 32.5 times projected 2026 earnings. Yet that ratio is still conceptually justified by the firm’s impressive earnings growth.

One key feature of today’s AI ecosystem – and a potential source of uncertainty – is that it’s based on a company, OpenAI, which still operates as a non-profit, unlisted entity, meaning it has considerable scope for creative accounting. OpenAI has already been involved in $1.4 trillion worth of essentially circular transactions with the AI heavyweights.

So, if any AI bubble is refusing to burst, what else do we have to look out for. We still have other short-term tailwinds to keep the markets moving forwards. The real benefits (or fiscal looseness) of the Republicans’ and Trumps “One Big Beautiful Bill” are frontloaded into the next few years — tax cuts and rebates for households, tax exemptions, and incentives for business. US fiscal support has been negative in the second half of this year (not least because of the shutdown) and this is going to turn positive next year. Principal Asset Management estimates that the average household will receive an extra $700 on their tax refund under the OBBB, while the investment incentives in the bill might push the effective corporate tax rate next year from 21 per cent to as low as 16 per cent.

S&P 500 revenues have risen solidly faster than inflation in the third quarter and margins are widening. I refer today to the US as this is such a dominant global market, driving investment returns and if the US market stutters, others tend to follow. Is the real threat to this continued growth story in the next year not actually an AI bubble, but in fact our old nemesis inflation? Positive reviews for 2026 are predicated on developed market central banks being able to cut interest rates, stimulating growth, on the back of falling inflation and soft economic data (but not bad data) – leading to a “soft landing”. Yesterday’s concerns that the US Federal Reserve may not cut rates in December due to a stronger than expected jobs report, was a more powerful force than the exceptional Nvidia earnings. Just how will President Trumps tirades impact on short term inflation numbers. We simply do not know, and this is what we are keeping a very close eye on. But for now, our immediate attention is on next Wednesdays budget in the UK, and until that has passed, I struggle to think of much else. Do have a good weekend.