Nvidia Stock Climbs After Impressive Quarter, Inflation Concerns Linger

GPU manufacturer Nvidia beat analyst expectations for its third-quarter revenue. The company is somehow navigating a market defined by red-hot demand and bottlenecked supply, impressing shareholders.

Stock futures pointed to optimistic growth Thursday morning as Nvidia and other companies posted better-than-expected revenue for the third quarter. Target and Walmart continue to impress analysts, bringing in record earnings even while labor availability remains scarce.

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“Labor is going to continue to be tight and we’ll continue to focus on retaining our existing team,” John Mulligan, Target’s COO, said during the company’s earnings call Wednesday.

Preliminary reports indicate that jobless claims are at their lowest point since March of 2020, though. This news has investors optimistic about economic recovery, resulting in upward movement for futures contracts on the S&P 500 Thursday morning. The Index is up 1.8% this month, bringing it within less than a percentage point of its all-time intraday high.

Nvidia Impresses Shareholders

Nvidia GPU

Graphics card manufacturer Nvidia beat expectations in the third quarter, bringing in $7.1 billion against a projected $6.81 billion in revenue. Those eye-opening numbers represent a 50% increase over the same period last year, causing investors to jump at the opportunity to scoop up Nvidia stock. The company’s share price shot up 3% in response to the news Wednesday evening.

“The third quarter was outstanding, with record revenue,” Stated Jensen Huang, Nvidia’s CEO. “Demand for NVIDIA AI is surging, driven by hyperscale and cloud scale-out, and broadening adoption by more than 25,000 companies. NVIDIA RTX has reinvented computer graphics with ray tracing and AI, and is the ideal upgrade for the large, growing market of gamers and creators, as well as designers and professionals building home workstations.”

The topic of cryptocurrency was conspicuously absent from Huang’s statement, even as crypto mining remains a driving force for graphics card sales. The demand for GPUs is so high that resellers have flocked to the industry as a speculative market. Scalpers use automated scripts to purchase the stock of graphics cards as soon as manufacturers list them on retail sites. Then, they list these components on secondhand sites like eBay for hundreds of dollars over their list price.

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The intense demand for graphics cards has also collided with an ongoing shortage of microchips. Bottlenecks in the manufacturing process have constrained semiconductor supplies for months, slowing the production of all consumer electronics. As such, Nvidia’s record-breaking revenue is even more impressive in the midst of one of the strangest market environments the company has ever navigated.

Inflation Fears

It’s impossible to talk about the stock market without mentioning inflation right now. Analysts are apprehensive about the devaluation of the dollar. Even as inflation hits its highest rate since 1990, retailers are still posting record-breaking revenue. Stakeholders are now waiting for the other shoe to drop.

Inflation Concept

US shoppers have absorbed the higher prices for consumer goods so far. Loose monetary policy from the Federal Reserve, coupled with deferred spending in 2020, has resulted in stuffed savings accounts and red-hot demand for consumer goods. Manufacturing is struggling to keep up with customer appetites. All these factors point to one unpleasant truth: inflation is probably here to stay.

If shoppers lose their nerve and demand cools off, the economy could slow to a crawl from the whiplash. Ever-increasing prices will eventually outpace the average consumer’s paycheck, which could be disastrous for the dollar. The Fed has a possible solution ready, but Chairman Jerome Powell hasn’t seen fit to use it yet.

Interest Rates

In a pinch, the Fed could start hiking interest rates. In March 2020, the central bank slashed interest rates to nearly zero to address the crumbling economy. This move kept liquid capital pumping through the US, but it also increased the monetary supply. When more money moves through the economy, inflationary pressure ramps up.

Experts say this pattern is playing out in more countries than just the US.

“The yield question is kind of global in nature,” CenterSqaure analyst Uma Pattarkine tells reporters. “We still see banks being very, very accommodative. So, it seems like we might be kind of in this ‘lower rate for a longer time’ environment.

“At this point, investors really need to be looking at yields, where they can get it elsewhere in the market if they’re not planning on getting it through fixed income in the near future, until we see that movement in the global rate market,” Pattarkine noted.

Jobless Claims

The best news for the economy so far this week came from the US Labor Department. Initial unemployment claims are down to 268,000 for the week ending on November 13. The number of continuing claims is down to just over 2.08 million. That’s below expectations and reassuring for investors.

Enticing workers into the retail sector is becoming more difficult for employers. Target and Walmart alike have cited higher labor costs in 2021. As inflation continues to raise prices, workers will expect their compensation to keep up. The question for companies now is whether they will eat these labor costs or continue to raise prices to offset heightened employee compensation.

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