By JJ Kinahan,Justin Sullivan,Senior Contributor

Copyright forbes

Nvidia is investing in OpenAI. (Photo by Justin Sullivan/Getty Images)
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Key Takeaways

Powell’s Cautious Remarks Shift Focus Toward Upcoming Inflation Data

Nvidia’s Massive AI Investments Drive Market Cap And Sector Momentum

Lithium Americas Surges On Potential Government Stake And EV Demand

Major market indices fell on Tuesday with the S&P 500 dropping 0.55% and Nasdaq Composite falling 0.95%. The Dow Jones Industrial Average and Russell 2000 fell by 0.19% and 0.24%, respectively. After celebrating last week’s news on interest rate cuts and forecasts for more, Chairman Powell delivered remarks yesterday where he described monetary policy as remaining “relatively restrictive.”

The market is being driven by a couple of significant catalysts. One is without question Artificial Intelligence (AI) and the ecosystem it’s creating. The other driver is optimism over lower interest rates. The latter of those has been in the driver’s seat for the last week. Lower rates are good for a number of reasons, one being lower borrowing costs for small businesses and growth companies, who generally rely more on lending than more mature and established companies. While Powell did not say anything that suggests the Fed won’t cut rates two more times this year, his cautious tone is worth noting because we do have a big report on inflation coming out on Friday.

The first driver of the market that I mentioned above, AI, is having an impact on almost anything chips related (you might even say AI is a house of chips). Last night, Micron Technology reported earnings that beat on the top and bottom line. The company also guided higher as a result of demand for their chips which are needed to run high-end AI chips, like the ones Nvidia uses. Shares of Micron have nearly doubled this year and are on track for their best month since December of 2009.

The headline AI act is without a doubt, Nvidia. Their chips are at the heart of Artificial Intelligence models such ChatGPT. On Monday night, Nvidia announced they would be investing $100 billion in OpenAI. According to the Wall Street Journal, Nvidia is expected to make other similar investments in AI companies in need of funding. This is interesting to me because it puts Nvidia in a position where it not only profits from selling its chips but also will profit on the success of final end AI companies like OpenAI and others. Some of those other companies will include cloud storage companies which OpenAI estimates could become a $1 trillion market. News of the Nvidia investment, and potential return on investment, added almost $160 billion to Nvidia’s market cap on Tuesday.

Shares of Alibaba are also gaining in premarket on news they will invest $53 billion in AI. That news has shares indicated higher by nearly 9%. We’re also seeing shares of Lithium Americas moving higher by more than 60% on news the Trump administration may seek a 10% stake in the company. Lithium Americas supplies lithium out of northern Nevada to companies that make things such as Electric Vehicles (EV).

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Speaking of the Trump administration, Democratic lawmakers were planning to meet with President Trump this week to discuss the upcoming spending package Congress needs to pass by September 30 or risk a government shutdown. Yesterday, the president canceled that meeting, putting Democrats in a position where they have to decide whether or not to vote for the Continuing Resolution (CR) passed by Republicans. After passing the CR, Republicans left D.C. for recess and do not plan on returning until after the September 30 deadline, at which point, if there is no spending bill, certain areas of the government will close until a new spending bill can be passed.

For today, I’m interested if yesterday’s pullback was just a blip or if we’re setting up for a potentially volatile October. I think Chairman Powell’s comments yesterday will place even greater emphasis on Friday’s Personal Consumption Expenditures (PCE) Index report. While the CME Fed Watch Tool is still predicting two more rate cuts this year, a stronger than expected inflation report could inject a bit of uncertainty. The upcoming deadline for Congress to pass a spending bill could also play a role in what the Fed does with respect to interest rates. Therefore, if you find yourself concerned about any of this, you may be partially responsible for Michelob Ultra’s role as the new number one selling beer in America. As always, I would stick with your investing plans and long-term objectives.

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