ECB economists flag an AI valuation correction as Nvidia shrinks its Ohio backstop
ECB economists warned on AI-linked valuations, Nvidia's Ohio backstop sits below 120 billion dollars, and September Federal Reserve hike odds were priced at 31 per cent as memory stocks rallied.
Economics & Markets··Night
ECB economists place today's AI boom beside past busts
Five European Central Bank economists wrote on Monday that a correction in stock market valuations is likely, because even a technology that succeeds struggles to meet the profit growth markets have priced in. Valuations on the United States stock market measured by the CAPE ratio sit close to their historical peak. The authors Malin Andersson, Johannes Breckenfelder, Stefano Corradin, Kalin Nikolov and Maria Antonietta Viola set the present episode beside nineteenth century railways, 1920 electricity and radio, and 1990 internet booms, each of which ended in sharp declines. Euro area households hold about 440 billion euros of exposure to United States technology equities, mostly through mutual funds and exchange traded funds, and often without seeing the concentration. A sharp fall would reach the euro area through fund redemptions, insurers and pension funds, and the historically high correlation between the two markets, touching sentiment, financing conditions and hiring.[1]
Nvidia is expected to guarantee less than 120 billion dollars initially for the proposed OpenAI data centre in Ohio, down from the 250 billion dollars previously discussed. The Wall Street Journal reported on Friday, citing people familiar with the matter, that the company would backstop only the first phase. The change followed investor concern about Nvidia's risk exposure tied to large financing commitments. OpenAI is still discussing a binding lease for the full 10 gigawatt project, which would be the largest data centre announced to date if completed and which SB Energy, a subsidiary of SoftBank Group, is developing. OpenAI remains unprofitable at a valuation of 852 billion dollars. Nvidia had partnered a week earlier with six major financial institutions on compute financing platforms aimed at raising more than 500 billion dollars of third-party capital for artificial intelligence infrastructure, and on Friday separately disclosed a stake of nearly 21 billion dollars in SpaceX and 30 billion dollars in Intel.[2]
September Fed hike odds fall as memory stocks rally
Investors on Monday priced a 31 per cent chance of a 25 basis point increase at the Federal Reserve's September meeting, down from near-even odds a week earlier. S&P 500 futures fell 0.37 per cent and the Dow 0.49 per cent, while the Nasdaq gained 0.12 per cent. Chip stocks carried the day: Sandisk rose 10 per cent, Western Digital 6.3 per cent and Nvidia 1 per cent. The move followed a report that Anthropic, which is preparing for an initial public offering, has projected 2028 revenue of roughly 190 billion dollars to 200 billion dollars, according to two people with knowledge of the company's financial projections. Wells Fargo Investment Institute meanwhile said it now expects a 25 basis point increase this year. In energy, Brent futures gained about 0.3 per cent and the S&P 500 energy index rose 0.2 per cent.[3]
