Nvidia strikes deal with South Korea to supply AI chips, Apple and Amazon report strong earnings

Key Concepts

• Sovereign AI: A nation's ability to develop and maintain its own artificial intelligence infrastructure and supply chain.
• AI Chips (GPUs): Graphics Processing Units, specialized processors crucial for AI computations.
• Mag 7: A group of seven large-cap technology companies (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, Tesla) that have significant market influence.
• AWS (Amazon Web Services): Amazon's cloud computing platform, a major driver of its revenue and profitability.
• Tranium 2 Chips: Amazon's custom AI chips designed for training large language models.
• GLP-1s and Incretins: A class of drugs, including those for weight loss and diabetes management.
• Trade Truce: An agreement to temporarily suspend or de-escalate trade disputes.
• Decoupling: The process of reducing economic interdependence between countries, particularly between the US and China.
• Currency Debasement: The reduction in the value of a currency, often due to inflation or increased money supply.
• 60/40 Portfolio: A traditional investment portfolio strategy allocating 60% to stocks and 40% to bonds.

Nvidia's Strategic Expansion in South Korea

Nvidia has secured a significant deal to supply 260,000 AI chips, specifically Blackwell GPUs and Prochips, to South Korea's leading conglomerates, including Samsung, SK Group (SK Telecom, SK Hynix), and Hyundai. This move is a critical step in South Korea's push for sovereign AI, aiming to build its own AI infrastructure and reduce reliance on foreign suppliers. For Nvidia, this deal signifies an expansion beyond China, solidifying its position as a key supplier in the global AI arms race. The company's CEO, Jensen Huang, has previously emphasized the importance of the Chinese market due to its large developer base, but with current restrictions, Nvidia is actively pursuing sovereign AI initiatives in regions like the Middle East, Europe, and now South Korea. Samsung plans to deploy approximately 50,000 of these Nvidia GPUs for applications in mobile devices, robotics, and new memory units for AI chips. Samsung's shares have seen over 100% growth this year, driven by its increased focus on AI.

Amazon's Strong Earnings and AI Integration

Amazon's shares surged following strong earnings, with the company adding approximately $300 billion in market value. A key driver of this rally was the reacceleration of AWS growth, which achieved roughly 20% growth, exceeding Wall Street's initial expectations of 18%. While clarity on AWS's AI benefits was previously a concern, and Amazon's AI partnerships (like with Anthropic, which also trains models on Google's TPUs) are still evolving, the strong AWS performance was a significant positive. Amazon also announced that its Tranium 2 chips have become a multi-billion dollar business, experiencing 150% quarter-over-quarter growth. The completion of "Project Rainier," involving 500,000 Tranium 2 chips, further enhances their rental capabilities. Amazon, like Microsoft and Google, is experiencing capacity constraints, with data center capacity being quickly utilized, indicating a positive outlook for AWS and its AI initiatives.

Big Tech Earnings and AI Spending Trends

The past week has been significant for the Mag 7 companies, with strong earnings reports from Apple, Amazon, Alphabet, Meta, and Microsoft. The overarching theme from these earnings is the continued increase in AI spending. However, investor reactions have been mixed.

• Meta's shares plummeted after announcing accelerated spending plans for 2025 and beyond, with a focus on building out AI infrastructure even if immediate utilization is not guaranteed. This approach, described by CEO Mark Zuckerberg as "we'll build it and if it's used now great, if it's not, well we'll use it in the future," struggled to resonate with investors seeking tangible results.
• In contrast, Microsoft, Google, and Amazon received a more positive reception for their AI spending announcements. Their capacity constraints and the assurance that built infrastructure will be utilized were seen as positive indicators of execution and demand.

US-China Trade Relations and Geopolitical Impact

President Trump's meeting with China's Xi Jinping has been characterized as a "truce" rather than a "breakthrough," according to Eurasia Group founder Ian Bremmer. The meeting, which was shorter than anticipated (90 minutes instead of 3-4 hours), focused on stabilizing the relationship and avoiding a trade war. Key topics like Taiwan and Russia were not discussed. Despite Trump's optimistic assessment, Bremmer suggests that the long-term trajectory remains one of decoupling and continued geopolitical rivalry, with both nations working to gain advantages over the other. This includes US efforts to reroute Chinese transshipments and coordinate on critical resources like rare earths, AI, and chips.

Gold Market Outlook and Central Bank Influence

Gold is trading near $4,000 an ounce, with its price up over 50% year-to-date. The surge in gold demand has been driven by central banks increasing their purchases, and in Q3 of this year, gold demand reached its highest point in recorded history at 1,300 tons. ETFs have also emerged as significant buyers, indicating institutional and retail interest. While gold is experiencing structural, generational tailwinds, a technical pause is expected, especially with shifts in interest rate expectations.

• Price Targets: Goldman Sachs forecasts gold to reach $4,900 by the end of next year, a prediction considered "very likely" by market analysts.
• Economic Impact: A recession could lead to gold retesting levels around $3,800-$3,600, but significant institutional buying is expected to provide support.
• Central Bank Shift: For the first time, central banks own more gold than treasuries, a trend that has now extended to "Main Street" with increased physical buying.
• Federal Reserve Influence: Fed Chair Powell's comments suggesting a December rate cut is not a certainty have had a near-term negative impact on gold due to competition with interest rates. However, the long-term structural demand for gold is seen as a counterbalancing factor. Concerns about inflation, rather than jobs, appear to be a primary focus for the Fed.
• Portfolio Allocation: Goldman Sachs is recommending higher allocations to gold within 60/40 portfolios, similar to the mainstream acceptance of Bitcoin.

Trending Tickers and Corporate News

• Nvidia: As mentioned, a major deal in South Korea to supply 260,000 AI chips.
• Netflix: Shares are up approximately 3% following confirmation of a 10-for-1 stock split aimed at making shares more accessible to employees. Reuters also reports that Netflix is preparing a bid for Warner Brothers Discovery's studio and streaming assets, potentially leading to a Hollywood bidding war.
• Disney: Disney's networks, including ESPN and ABC, are no longer available on YouTube TV due to a failure to reach a new carriage deal. Negotiations over pricing are ongoing.
• Universal Music: The publisher behind artists like Taylor Swift has settled its copyright dispute with AI song generator ODO and is now partnering with ODO to build a licensed artist-approved AI music platform.
• Pharma Giants (Novo Nordisk, Pfizer, Eli Lilly): A bidding war is underway for Metser, a US obesity drug developer, with Eli Lilly currently leading the market. Eli Lilly reported strong performance, with its GLP-1 and incretin portfolio driving 54% growth year-over-year. The company is expanding its global reach for its obesity drugs, now present in 55 markets with tepatide, and is seeing significant growth in its direct-to-patient portfolio (up 70% quarter-over-quarter). A partnership with Walmart has also been announced for product pickup.

Earnings Movers

• Chevron: Shares are rising after a strong beat on both earnings and revenue. The $53 billion Hess acquisition significantly boosted production, with worldwide output reaching 4.1 million barrels of oil equivalent per day. Downstream earnings were up over 90% year-over-year.
• Exxon: Despite strong results, shares are moving down. Adjusted earnings were $188 a share, and revenue was $85.3 billion. The Yellowtale project in Guyana helped lift output to a record 700,000 barrels a day. However, free cash flow fell to $6.3 billion, insufficient to cover dividends and buybacks, indicating pressure from heavy investments and lower oil prices.
• Colgate-Palmolive: Shares are trading flat after missing organic sales estimates. Organic sales grew only 0.4% in Q3, well below the expected 1.4%, with declining volume in most regions. Earnings were 91 cents a share, and revenue was $5.13 billion. The company maintained its full-year EPS guidance but warned of continued consumer pressure and weak demand in Asia.

Market Futures

As of the broadcast, US stock futures show a mixed picture. The Dow is trading slightly below flat, while futures for the NASDAQ and S&P 500 are showing gains, with the NASDAQ futures leading the way higher. Asian markets are also mixed, with the Hang Seng index down and the Nikkei 225 up.

Conclusion

The market is navigating a complex landscape shaped by geopolitical developments, significant advancements in AI technology, and robust corporate earnings. Nvidia's strategic expansion in South Korea highlights the global race for AI dominance and the push for sovereign AI capabilities. Amazon's strong performance, particularly in AWS, underscores the growing demand for cloud services and the increasing integration of AI. While big tech earnings reveal a continued surge in AI spending, investor sentiment is bifurcated, with execution and tangible results being key differentiators. The US-China trade truce offers a temporary respite, but underlying geopolitical tensions and the trend of decoupling persist. The gold market is experiencing strong structural demand driven by central banks and retail investors, positioning it as a favored alternative asset. Corporate earnings from energy giants like Chevron and Exxon show mixed results, influenced by acquisitions and investment pressures, while consumer staples like Colgate-Palmolive face headwinds from weak demand. The market is poised for continued volatility as these diverse factors play out.