Rate Cut Worries, GPU Risks, AI Spending

Good Afternoon. It was a volatile week due to the busy news flow on the shutdown, the tariff deal, the possible December rate cut pause, and AI GPU depreciation. Markets ended almost flat for the week. Detailed analysis of these themes below -
 
Below are the key things to note this week:

How long before the GPU depreciates? Michael Burry raised concerns about the GPU depreciation timeline, which helped spook AI enthusiasm in recent days. Hyperscalers are extending GPU useful lives from 2-3 years to 5-6+ years, understating depreciation by ~$176B from 2026-2028 and inflating profits by 20%+. This is "one of the most common frauds in the modern era," per Burry—akin to Enron-style accounting.
Even though this is a valid point, I don’t think Michael Burry is in any position to cast doubt on the hyperscalers, which have, over decades, demonstrated respected management. If these companies are extending depreciation cycles, I will trust their judgment much more than M. Burry, who has no direct insight or knowledge of these conclusions. He was right on subprime, but that was a completely different issue than this, which I don’t think Mr. Burry has enough knowledge to comment on. Stating that not one or two, but all, highly respected hyperscalers are indulging in an Enron-like scam is bizarre. Yes, new chips are faster every year, and there will be a need to replace them, but that doesn’t mean Nvidia and others won't give customers credit for old GPUs, etc., and control the actual depreciation impact.

Longest US Shutdown is Over: The Longest US Government shutdown is finally over. Now we can start having more macro data releases each week, which will help markets and the Fed build a clearer picture of the economy.

NVIDIA Earnings Next Week: Nvidia reports earnings next week, and the stakes are unusually high: investors want clarity on Blackwell shipment timing, near-term data-center demand, and whether AI capex remains on a sustainable path rather than a circular spending loop. The market will focus on three pressure points—order visibility into 2025, any signs of digestion among hyperscalers, and updates on supply constraints.

No Rate Cut In December? One of the primary reasons for the volatility this week is that the Fed may pause its rate-cutting cycle in December. The signals coming from the Fed indicate that the FOMC is split, and anything can happen. The CME FedWatch probabilities are also almost 50-50%.

For the week:

• The S&P 500 is up 0.08%, the Nasdaq is down 0.45%, and the Dow 30 is up 0.34%.

  

  Barchart

CNN's Fear & Greed Index now stands at 22 (Extreme Fear) out of 100, up 1 point from last week. Details here

The top five trending stocks on Reddit are SPY, Nvidia, Nebius Group, MicroStrategy, and Meta. Read More

Liquidity: No material change in reserve balance from last week. Still ~$2.8 trillion. ON RRP is also almost 0 @ ~$1.5 billion.

Here is a summary of this week’s key economic releases:

Target Rate Probabilities for December 10th FOMC Meeting:

Good News on Tariff: The U.S. and Switzerland have finalized a trade deal, U.S. Trade Representative Jamieson Greer told CNBC. Tariffs will be lowered to 15%. Swiss firms will invest about $200 billion in the U.S. by 2028, including funding for education and training. Read

Buffett Buys Google: Berkshire Hathaway disclosed a new $4.3 billion stake in Alphabet while trimming its Apple position, marking the final portfolio update before Warren Buffett steps down as CEO after 60 years. The filing showed Berkshire held 17.85 million Alphabet shares as of September 30. Read

Win for Circle: Circle launched a test version of its Arc blockchain, with Goldman Sachs, BlackRock, Apollo, Anthropic, and ICE participating in the trial. Read

Shutdown Over: President Donald Trump signed a bill late Wednesday to end the 43-day government shutdown, pushing the next funding deadline into late January. Read

Cisco Beat: Cisco reported fiscal Q1 adjusted earnings of $1 per share on revenue of $14.88 billion, exceeding expectations of $0.98 per share and $14.78 billion. Networking revenue, its largest segment, including AI data center equipment, reached $7.77 billion versus estimates of $7.45 billion.

Applied Materials Beat: Applied Materials’ Q4 FY25 results beat expectations, with strength building ahead of expected demand in the back half of 2026. Adjusted EPS came in at $2.17 vs. $2.10 expected, and GAAP EPS was $2.38 vs. $2.06. Revenue was $6.8B, with $4.76B from Semiconductor Systems and $1.63B from Global Services, down 3% YoY. Adjusted gross margin held at 48.1%, in line with estimates

Disney Miss: Q4 Non-GAAP EPS came in at $1.11, beating estimates by $0.09, while revenue slipped 0.5% to $22.46B, missing by $320M. Subscriptions ended the quarter at 196M across Disney+ and Hulu, up 12.4M from Q3, with Disney+ alone reaching 132M, a 3.8M increase.