To The Moon

Hello. US markets barely moved during Wednesday's session — $S&P 500(.SPX)$ fell 0.02 per cent and $Invesco QQQ(QQQ)$ rose 0.09 per cent, with everyone waiting on one set of results after the close.

They arrived, and the numbers were better than anyone had expected. Record revenue of US$96.221 billion, up 106 per cent year on year, with data centre revenue up 117 per cent; consensus was about US$92.38 billion, so revenue came in about 4 per cent ahead, and adjusted earnings per share was US$2.22 against US$2.09 expected, about 6.22 per cent ahead. Guidance for the current quarter is about US$108 billion, and revenue in financial year 2028 is expected to grow about 70 per cent again. Gross margin for the quarter was 75 per cent, level with the previous one. Nvidia also returned about US$26 billion to shareholders, repurchasing 30 per cent more stock than in the prior quarter.

In the same set of materials, though, it owned up to something less flattering: gross margin will fall to 71 to 72 per cent in the fourth quarter, and only recover to 72 to 73 per cent in financial year 2028. The reason is the company's own: memory is too expensive. One report called it an "extreme" memory crunch.

Which is to say, this is not a one-quarter problem: the lower margin runs from the fourth quarter through financial year 2028. The company also said supply would stay tight at least until the end of financial year 2028 — the two statements describe the same stretch, a little over a year.

This bill has surfaced three times already, and each time the cost was handed to whoever was buying. Contract prices bit handset margins first, and Xiaomi's second-quarter net profit fell 42.6 per cent. Then they lifted GPU prices, with Intel's jumping 48 per cent. Then AI servers, with Nvidia charging customers more than 15 per cent extra.

What is different this time sits here: Nvidia can push its own prices up, by more than 15 per cent, but it cannot push memory's down, and it still has to absorb three to four percentage points itself. Passing it on was no longer enough — even the buyer with the most bargaining power keeps a share of it.

How the share price reacted says as much as the numbers do. The stock fell when the numbers first landed — headlines said it beat and slid anyway, that a blowout quarter left investors unmoved — and only turned higher once the 70 per cent growth outlook for financial year 2028 appeared. It rose 5.26 per cent after hours to US$220.69, having closed the session down 1.59 per cent. One report noted this could be its first positive post-earnings reaction in more than a year.

With the biggest buyer confirming the price rises out loud, the memory sellers were repriced immediately. Reports say Nvidia more than doubled its memory purchases from the prior quarter. Memory followed: $Micron Technology(MU)$ up 3.06 per cent, $SK hynix(SKHY)$ 3.43 per cent, $Marvell Technology(MRVL)$ 3.63 per cent and $Direxion Daily Semiconductors Bull 3x Shares(SOXL)$ 5.51 per cent.

During the session they had been flat — $SanDisk Corp.(SNDK)$ up 1.26 per cent, $Micron Technology(MU)$ 0.58 per cent, $SK hynix(SKHY)$ down 0.95 per cent. The direction was only set after the results. The AI neoclouds followed the same pattern: $NEBIUS(NBIS)$ fell 3.62 per cent in the session and rose 5.36 per cent after hours.

One report says Micron's long-term contracts cap the upside from this cycle, and another names China's YMTC as a threat to both Micron and SK Hynix. A buyer confirming higher prices is not the same as a seller keeping the increase.

The same results also fed another argument. Jensen Huang rejected the circular-financing label, saying the company sees it differently. Yet two figures sit in the same materials: customers are taking 33 per cent longer to pay than last quarter, and one report says the company's financial commitments rose sharply in the period. The chief financial officer said Nvidia has put about US$50 billion into frontier labs, and that OpenAI's commitments amount to roughly 12 gigawatts. Amazon added an order for two million GPUs, which one report described as tripling what it had ordered before.

A day earlier The Wall Street Journal called Nvidia a banker to the AI boom. On this day one outlet reached for a heavier word: it is starting to look like the central bank of AI. A central bank carries one worry a banker does not — whether there is enough money in the system. Customers paying more slowly while commitments rise suggests the credit it extends is running ahead of the cash coming back.

A batch of software companies reported the same evening, and outgained Nvidia. $Okta Inc.(OKTA)$ rose 20.62 per cent after hours, $Salesforce.com(CRM)$ 13.35 per cent and $CrowdStrike Holdings, Inc.(CRWD)$ 9.68 per cent.

$Okta Inc.(OKTA)$ beat on earnings per share by about 8.77 per cent and on revenue by about 1.51 per cent, and raised full-year guidance, with coverage putting the demand down to identity security for AI agents. Salesforce is the one worth taking apart: earnings per share beat by about 80.49 per cent while revenue beat by only 0.13 per cent — profit far ahead, revenue just enough. It also raised its full-year outlook and announced an expanded partnership with Anthropic's Claude, with AI subscriptions approaching US$4 billion.

This was not the whole software sector being repriced, though. SAP was downgraded the same day, under a Barron's headline saying the sector is losing its AI battle.

HP was the strangest name of the evening: down 8.98 per cent after hours at US$27.78, having risen 3.39 per cent during the session.

What makes it strange is that it beat. Record revenue of US$15.7 billion, earnings per share about 24.98 per cent ahead and revenue about 8.60 per cent ahead, with full-year earnings and free cash flow guidance both raised. There is no ready explanation for the fall in that day's coverage — it says only that HP beat, raised guidance and dropped anyway, without saying why.

The one thing that can be observed is a Wall Street Journal headline: revenue grew because higher prices offset fewer PCs sold.

July PCE was 3.7 per cent year on year, level with June and a little above the 3.6 per cent expected; core was unchanged at 3.30 per cent, with the monthly core rate rising from 0.10 to 0.20 per cent. Inflation is sticking rather than worsening.

But there is another line in the same release: real personal spending went from 0.40 per cent month on month to zero. Prices held and volumes stopped — the same thing HP's results said, written a different way.

The long end was not soothed either. Reports say the 10-year yield dipped briefly and returned to around 4.7 per cent, with the 30-year still above 5.2 per cent.

$Marvell Technology(MRVL)$ reports after tonight's close. A warning first: the consensus for earnings per share differs by more than a factor of two between data sources, with US$0.40 and US$0.94 both in circulation, most likely a GAAP versus non-GAAP difference — check which one is being used before accepting any "beat". What matters is whether third-quarter and full-year guidance are raised, and whether a gross margin near 59 per cent holds, Nvidia having just demonstrated how memory eats into that. Marvell rose 1.97 per cent during Wednesday's session and a further 3.63 per cent after hours.

After that comes Jackson Hole, with Warsh speaking at 22:00 Beijing time on Friday.

The bill is not paid off. Nvidia has pushed its margin recovery out to financial year 2028, an admission that it carries this for a year and more. Every link in the chain is working the same sum: how much of the higher cost to swallow, and how much to hand on. The ones who never have to do the sum at all are the subscription businesses — there is no memory in their warehouses.

The above is personal analysis, not investment advice.

💬 【Talking Point】

$NVIDIA(NVDA)$ rejects the circular-financing label, yet in the same quarter its customers took 33 per cent longer to pay while its own financial commitments rose sharply — and one outlet now calls it the central bank of AI. If the credit it extends keeps running ahead of the cash coming back, does that come out in the wash, or does it turn up in a later set of accounts?

💰 【Bounty】

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