This is an audio transcript of the Unhedged podcast episode: ‘Nvidia’s crazy day’
Katie Martin
We’ve had quite the vibe shift in markets over the past few weeks from “la, la, la, everything is awesome” to “this is nuts, when’s the crash?” Riding to the rescue is chip’s mega monster Nvidia, which put out yet another set of crackerjack earnings earlier this week. Today on the show we’re asking: has Nvidia just saved us from a massive market crash?
This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, a markets columnist at FT HQ in an increasingly wintry London, and I’m joined down the line from New York City by the big man Rob Armstrong off of the Unhedged newsletter.
Rob, listeners can now see our little faces in the podcast box, can’t they?
Robert Armstrong
And there’s been an alarming, if predictable, number of . . . correspondents have written to say I expected Rob to be much better-looking. (Laughter) And I’ve replied to all of them: so did I.
Katie Martin
Yeah. My friend Al texted me at the weekend saying that he was under the impression that you look like Jon Hamm.
Robert Armstrong
That’s what I thought too, until I saw that photograph . . . Whose chin is back? God!
Katie Martin
The voice of George Clooney, ladies and gentlemen, the face of Rob Armstrong. (Laughter) Now let’s get down to business, right?
So markets have been looking pretty wobbly. Everyone’s been getting pretty nervous, bitcoin down 28 per cent from the peak — you know, all that stuff. And then boom, along comes Nvidia, world’s biggest, most gigantic, most ginormous chips company in the States. And it put out incredible earnings, like, it’s just making insane amounts of money. And that has kind of lifted the mood again. It’s made everyone think, oh, maybe the AI trade is still on. Let’s just carry on as we were.
Rob, what, do you reckon to that? Has Nvidia just like soothed all the ills of the world here?
Robert Armstrong
It just ain’t that simple. This is actually quite a complicated situation. There is something a bit paradoxical going on here, Katie, which is like, Nvidia comes out with, once again, incredibly strong numbers. Their revenues grow 60 per cent or whatever it was, and it’s $500bn revenue a quarter, and they can’t make their products fast enough and et cetera, et cetera. And everyone says, see, all that bubble talk was crazy.
Katie Martin
Exactly. Exactly. And that was pretty much exactly what chief executive Jensen Huang said to analysts.
Robert Armstrong
Yeah. He said he was . . . people are talking AI bubble. I don’t know what they’re talking about. I’m selling tons of this stuff . . .
Katie Martin
I’m worth a trillion dollars. It’s like, yeah, are you helping here Jensen or, no? I’m not sure.
Robert Armstrong
Yeah, I mean, people always, I think, misspeak when they say things like Nvidia is overvalued. The worry is not Nvidia’s price-to-earnings ratio or anything like that. The worry is that the revenue that it’s earning and the growth rate of that revenue is ultimately unsustainable. At the current growth rate and level of revenue, Nvidia’s valuation makes perfect sense, right? The question is whether the revenues are gonna keep going like this. So the headlines should have read this morning: There still might be an AI bubble, but it’s not popped yet, right? Something like that.
Katie Martin
Well, like you, I spend a disproportionate amount of my life speaking to fund managers, people who manage other people’s money for a living. They all say something along the lines of, look, if it walks like a duck, it quacks like a duck, you know, this thing is a bubble. Like, everyone can see there are, there’s bubbly stuff going on here. There’s like huge amounts of money all chasing this one thing. And there’s some like crazy projects that are getting signed off and there are just overly large numbers kicking around and everyone can see that there’s froth and exuberance here. But, and I think we may have spoken about this on the show before, you don’t wanna be early. You don’t wanna say, OK, I’m getting out of these names, or, I’m gonna short them because the pain when you have that final, you know, push higher in these stocks, which could be another 10, 20 per cent, I’m guessing,
Robert Armstrong
Or more — could be 50 per cent, right, no problem. Could be 50 per cent, right, yeah.
Katie Martin
Yeah. So you just don’t wanna be that person who’s not in it.
Robert Armstrong
Yeah. Because if you are, you’re just fired. It’s as simple as that. That’s what happens, you’re fired.
Katie Martin
I was talking to someone the other day and I do — if I remember who it was, I will say — and I do apologise for not remembering, but they were saying, you know, someone had like a load of Nvidia stock and had run it from like almost nothing to where it is now, and it made an absolute metric ton of money out of this one stock, and their financial adviser kept saying to them, you know, you really might want to like take some of this risk off the table just in case it goes wrong. So he eventually said, OK, fine, I’ll cut the size of my position by 10 per cent. And then the stock went up another 10 per cent or so, and he was absolutely, apparently furious with his financial adviser saying, I’ve missed out on some of this rally.
Robert Armstrong
It’s dangerous thinking.
Katie Martin
And the adviser was like, no, but you still have 90 per cent of this bet on. Like, but psychologically you get very upset by the money that you failed to make that was there right in front of you and you don’t see the big picture.
Robert Armstrong
That’s absolutely right. Speaking of the big picture, we got another big picture number this morning, which was a slightly old one, but nonetheless relevant and markets are responding to it, which was a US jobs number, which was — remind me, Katie?
Katie Martin
119,000 jobs.
Robert Armstrong
A big number, much bigger than expected, especially coming after the August number, which was plus or minus zero, right, or in that range. And . . .
Katie Martin
I’m here to tell you why that’s actually bad news for your overall thesis.
Robert Armstrong
Great! Yes, you are the good-news-into-bad-news alchemist, Katie. It is, like, as alchemists turn lead into gold, you can turn news lead . . . news gold into lead.
Katie Martin
Gold into lead. But come on now, even you know this: all things equal, this makes it harder for the US Federal Reserve, right, the US central bank, to keep on cutting rates.
Robert Armstrong
True. But . . .
Katie Martin
And if you don’t get the rate cuts that, you know, it’s slightly problematic for some of the more fizzy bets that are out there.
Robert Armstrong
Point number one, I’ll take the jobs over the cut every time. Point number two, there was something there for the pessimist too, which was the unemployment rate went up from 4.3, I believe, to 4.4 per cent now. Remember these two numbers, the number of jobs added and the unemployment rate, come from two different sources. The . . . what’s it called, the institution survey? It’s basically the survey where they talk to businesses, that gives you the jobs added/taken away number. And the survey where they talk to households, which gives you the unemployment rate. So there was something for the Fed-should-cut crowd in the unemployment rate, even if the jobs-added number didn’t supply that.
Katie Martin
OK. Yeah, OK. It is the highest level of unemployment since 2021.
Robert Armstrong
True, and also a low level by historical standards. An economy with 4.4 per cent unemployment is OK. (Inaudible)
OK, can I say something funny about this, that was pointed out by Seema Shah this morning. Principal Management? Principal Investors? Principal Asset Management! Thanks very much. She pointed out, I’ll just read from her note this morning. The report is making markets move. Equities and bonds seem to be picking the parts of the job release they like. Equities like the fact that payrolls were stronger than expected, suggesting the economy is still on firm footing while the bond market likes the rise in unemployment and slowdown in wage growth, which may keep the case for a December Fed cut just about alive.
And do you know what kind of thinking picks the good stuff in one area and picks the bad stuff in the other area and doesn’t look at the two of them together? That’s bubble thinking, Katie, right. Whatever happens is good news. That’s bubble thinking, right?
Katie Martin
Yeah.
Robert Armstrong
(Laughter) I mean, so the fact that the market is picking the good news wherever they can find it. Yeah. That, that I think should make us a little nervous about where markets heads are at.
Katie Martin
Cherry picking is not exactly a new phenomenon in markets, right?
Robert Armstrong
No.
Katie Martin
People always, you know, pick out little bits of economic data or corporate performance or whatever it is to bolster whatever their overall view is. And there’s a lot of that, there’s a lot of that going on at the moment. But you can nonetheless see a lot of reasons for concern, you know, again, like going back to the private credit thing. Investors still haven’t got over that little string of failures that was related to the private credit markets a few weeks ago. People are still on high alert and thinking, you know, at what point is like the, you know, the odd fraud here and there, or the odd blow-up, at what point is this a symptom of something bigger, which is like crappy, overly easy lending standards in a huge gold rush into private markets? Or there’s a fine line between like esoteric risks and one-offs and actually something bigger. And I don’t think people have like declared, you know, you are clear here. Yeah.
Robert Armstrong
I agree with your instinct here, Katie, that sentiment among market professionals and pundits is a bit on, wobbling on the razor’s edge and could tip either way. Let me give you another example of that. But first, let me quiz you on something. This is a quiz that is relevant to the transatlantic divide. There is a store that sells branded clothing at discounted prices, and the second word in the store’s name is Max. What is the first word?
Katie Martin
(Laughter) Obviously TK.
Robert Armstrong
Yes, you would say that because you’re from England. Americans know this store correctly as TJ Maxx.
Katie Martin
I don’t know why it’s different. It’s really odd, isn’t it?
Robert Armstrong
It’s very weird. And in any case, this company, which is actually a very large, very successful company, the TJX Companies — notice that they choose the J in the company’s name . . .
Katie Martin
Whatever.
Robert Armstrong
. . . reported earnings this week. And they had very good earnings. And it was another example where market observers could pick out the story they wanted. You could look at the good earnings and say, look, people are still out there buying clothes. Or you could look at the earnings and say, they did well because people are trading down, they’re shopping at the discount place, right. You know, Walmart reports, the most important retailer in America there is. And it had good results. More people are shopping at low-cost Walmart, is that a good sign for the economy or a bad sign for the economy? I give you this Rorschach blot to contemplate, Katie.
Katie Martin
Yeah, exactly. But just as a mental exercise, right, let’s say this really is a bubble and it really is about to pop, like, two questions. Like, how do you hedge against that? And what would the pop look like? So, you know, again, I was talking to some investors this morning and they were talking about, look, we do think there’s a very high risk of, you know, corrections or pullbacks in the AI trade next year. So the way we’re hedging that is to invest more in China or to think not just about, you know, specifically AI stocks, but the infrastructure behind it, right, so the data centres and energy and commodities and that sort of thing. And I’m like, how is that hedging? That’s just investing in a different part of the same thing. So I’m like . . .
Robert Armstrong
(Laughter) I mean, it is very tempting and I fell into this temptation in print this week that if you own certain kinds of risk assets, when the bubble that might or might not exist pops, you will do better. So, for example, the one I’ve been writing about is what if you owned basically boring stocks, anti-tech stocks like Staples, you know, Procter & Gamble, which makes Tide and stuff that we’re gonna buy even when the — not your family, by the way, Katie, because your family makes its own dishwasher tablets — but most families do not make homemade detergents on the weekend. Normal families continue buying these things even in a crisis.
Katie Martin
I’m not keen on this whole family thing. This is a Mr. Martin thing. This has got nothing to do with me, the homemade dishwasher tablets.
Robert Armstrong
OK, so you . . . or you buy cheaper stocks, you buy the UK index instead of the US index, or you buy the S&P equal weight index, which gives you less weight to the big tech stocks. You basically say, I’m still an equity investor, but I’m going to safer corners of the market. And if you look at bubbles in the past, that has given you some protection but not much.
Katie Martin
No. I mean, the spoiler alert here is if it blows up like, spectacularly, all of those things will get ironed out. Like everything will get killed in the short term. Maybe they recover faster and end up being less volatile, but everything will take a hit.
Robert Armstrong
What is a bubble popping? Let me just, I want to hit that point again. I think it’s a really important one. When a bubble pops, there’s . . . the primary victim is the stuff that was massively overvalued. In this case that’ll be, you know, we’ll discover that Nvidia was overvalued. You know, the other AI stocks were overvalued. And of course you have to sell those. They’re collapsing, but then the stuff that’s still doing fine becomes a funding source. You’re like, oh, my Procter & Gamble shares have held their value. Now I can sell those so I can get the cash that I need for various other problems that I have. Right? So even the stuff that’s holding up good gets blown up when a bubble pops.
Katie Martin
So the general rule of thumb is that when there is some sort of pop in markets for like whatever reason, like Covid, or “liberation day”, crazy tariffs or, whatever it is, investors don’t necessarily sell what they want to sell. They sell what they can sell, like whatever is still liquid.
Robert Armstrong
Yes. Perfect, that’s another way of making a point.
Katie Martin
Yeah. Whatever they can sell quickly to get some cash in the bank. I feel like this thing, when it pops, if it pops, might be a bit different in that the thing that’s going to be liquid and easy to sell in that scenario is still Nvidia, ‘cause it’s so big, ‘cause it’s such a big stock.
Robert Armstrong
(Laughter) Yes, I hadn’t thought of that.
Katie Martin
There’s so much of it . . . Yeah. So I wonder whether, actually, if this is a bubble and if it blows up, it might actually be quite a controlled explosion because there’s just, you know, the stocks that are in the middle of the mix here might be the ones that are punished more than your nice, boring Procter & Gamble than your, you know . . .
Robert Armstrong
What this makes me think of is one of my favourite phrases is, which is like the tactical nuclear weapon. Like, oh, this one will only blow up half of the city. You know, like, oh, great. You know?
Katie Martin
Yeah, Or like, there’s a columnist who was famous in this country who was called Victor Lewis-Smith, and he used to say it’s like having a pissing area in a swimming pool. (Laughter) You know . . .
Robert Armstrong
Does everybody have those?
Katie Martin
Well, maybe in the pool in your backyard, your, luxury boat . . . But . . .
Robert Armstrong
I will note there are exceptions to the idea that the market is a swimming pool and owning safe stocks is the pissing area. Like for example, in the great financial crisis, am I getting this right, in the great financial crisis, if you own staple stocks, their value was stable in ‘08, ‘09, right, so you didn’t lose money. So you know, there are exceptions, but they are few and far between, and so I’m not utterly convinced that we are, I mean, I think the market is overvalued and I think there’s AI frost. But whether this is a massive bubble that’s about to implode, I’m not smart enough to determine, so I’m just gonna say I’m not sure about that, as a way to close the loop here on this particular . . .
Katie Martin
I’m very much in favour of just saying I don’t know. But if I were to place a bet on this, I would say the likelihood of some sort of correction, not necessarily a crash, but a correction next year is very high. And you wouldn’t rule it out, right?
Robert Armstrong
Ultimately, there is one hedging technique that you know is gonna work in a massive correction or a financial crisis, and that is increasing your allocation to cash. In fact, you can think of the whole market as just two assets — risk assets and cash. And when I say cash, I don’t necessarily mean literally cash. I mean cash and sort of rolling short-term bonds or certificates of deposit.
Katie Martin
Yeah. Or just like keep your money on deposit at a bank with a, you know, some kind of interest rate, where the last thing I want anyone to do is like, listen to this podcast and then head out and take all of their money out of the bank in like notes and put it under their bed. Don’t do that.
Robert Armstrong
And anytime you’re having a bubble in risk asset, that means you’re having a bear market in cash. And at the, what we’re talking about here is whether there’s suddenly gonna be a huge bull market in cash, right? That’s gonna be the asset everybody wants, right? So if you think there’s gonna be a huge bull market in cash, maybe hold a little bit more of it.
I would never, by the way. Because I’ve made mistakes in my past. As you may know, Katie, I’ve made mistakes in my past, and those mistakes have taught me you never wanna be all the way out of the equity market. Never. It just doesn’t. It doesn’t pay.
Katie Martin
You wanna keep some stocks.
Robert Armstrong
Equities are the best asset. They have been through history. If you have anything like a long time horizon, you want to own some of those things. Expensive market, cheap market, whatever.
Katie Martin
And famously, if you miss the big up days that come when the tide turns and it gets more positive again, then you lose a lot of money relative to what you could have done. So that’s the thing. Even if you know or think you know that we’re at the top, you are very unlikely to also be able to predict the bottom and get back in again at the right time. So . . .
Robert Armstrong
But if you’re a 5 per cent cash position woman, maybe it’s time to be a 10 per cent cash position woman. Right? Like I’m a kind of a 10, 15 guy and I’ve been edging up in my, you know, my own modest savings. I’ve been edging up a little bit in terms of cash. Did it too early? Oh, well, I’m sleeping like a baby these days. I mean . . . (Laughter)
Katie Martin
Sleep all that beauty sleep that you need, Rob.
Robert Armstrong
It’s not working at all. (Laughter) It’s ugliness sleep in my case.
Katie Martin
Let’s not be too harsh on ourselves there. Yes, your face aside, let’s close this loop here and conclude to listeners that we don’t know . . . and we are willing to own the fact that we don’t know, but that we do think that there might be something going on. That sounds like solid advice. We will be back in just one second with Long/Short.
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Okie-doke. It is time for Long/Short, that part of the show where we go long a thing we love or short a thing we hate. Rob, what you saying?
Robert Armstrong
Katie, I am long the stimulus check.
Katie Martin
Ah, yes.
Robert Armstrong
The stimulus check, you may remember as the thing that brought Americans 9 per cent inflation when they thought that was a thing of the past. But President Trump has renamed it the tariff dividend and has tossed around the idea of sending $2,000 to everybody in America who makes less than $100,000 a year. Various other senators of both persuasions, Republican and Democrat, have poo-pooed this idea. I am . . .
Katie Martin
It’s very socialist of him, too.
Robert Armstrong
But I am here to tell you that if things start to go sideways, Congress and the White House is gonna fall back in love with the stimulus check.
Katie Martin
Yeah, universal basic income.
Robert Armstrong
Do not count the stimmy out. What do you have, Katie?
Katie Martin
I am long . . . if you are looking for a red flag to tell you that markets are overly exuberant and stupid stuff is going on, I’m here to bring you the news that a company called Luxus is debuting an investment fund for luxury handbags. That’s it. That’s the story. It’s going to focus on Hermès and Hermès, Birkin and Kelly handbags, meaning, I don’t know what they are.
Robert Armstrong
So the fund gets your money, buys these handbags, and then they appreciate, and they, then they sell the bags and give you the cash? Or maybe the technicalities aren’t important. All you really need to know is handbags as investment.
Katie Martin
That’s it. That’s the story. That’s all you need to know. Like, this is nuts. When’s the crash?
Robert Armstrong
Yeah. That’s a terrible idea.
Katie Martin
We’ve, come full circle here.
Robert Armstrong
We don’t know many things, you and I, Katie. We know that’s stupid.
Katie Martin
Yeah. We know don’t lose it.
Robert Armstrong
That is stupid.
Katie Martin
Well, as long as there isn’t some hideous crash that ends humanity between now and Tuesday, listeners will be back in your ears then. So listen up.
Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. Topher Forhecz is the FT’s acting co-head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.
FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com/UnhedgedOffer. I’m Katie Martin. Thanks for listening.
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