Here’s a preview of what we’ll cover this week: 

Macro: Druckenmiller vs Bessent; Jackson Hole: Warsh Has "Work To Do"

Markets: Nvidia: The Least Surprising Blockbuster In Markets; Is This An Earnings Bubble?; The AI Application Layer

Lumida Curations: Dan Ives On The Biggest Threat to the AI Trade; Dylan Patel On AI Compute For Training; Sam Altman On AI Safety

Hey guys and gals -

Sorry for the delay. I had my first overnight camping trip. We had no Wi-Fi or cellular technology. That might have been the first time in three years that we missed the Sunday delivery.

We cooked Picante over an open fire grill on Friday night, and had

I received quite a few notes of concern from our readers - rest assured we are back.

Separately, I am looking for volunteers to test a new service in beta that identifies tax mitigation opportunities. It’s a powerful tool. It’s in Beta now.

Please try it out at Tax.Lumida.com and give us your feedback. If you like it, we’ll roll it out to the public and finish up the paywalls. Right now the tax mitigation detection tool (for US citizens only) is free.

Usage of the tool does not constitute Tax Advice. Reach out to your CPA or Lumida Advisor for more.

AI agents are becoming the nanites of human workflows. 

AI Agents are restless, atomic, and purposeful. They fill in crevices the humans can’t. They don’t need to prioritize, they just ‘spawn’. 

This A16z podcast with Alejandro Maza, Chief Product & AI Officer at Kavak, offers a glimpse into the future of Agentic AI Services. 

The service industry is the largest part of the American economy, and historically immune to disruption.

Many of those service markets and profit pools are up for grabs in the coming years. 

When will we see a fully agentic bank?

Agentic wealth management?

How about agentic trust and estate planning?

Agentic bill pay and cashflow optimization?

Most of the focus went to AI infrastructure in the first phase. 

But now, the application layer is coming into view and it’s looking bright for high agency teams and founders.

We are setting the foundation for a wealth management revolution at Lumida. 

Experience our app today.

We have recently launched an infinite feed of curated markets insights coming from various high-quality proprietary sources. It’s your daily dose of dopamine.

Scott Bessent announced expansion of the US treasury buyback operation last week in an attempt to lower long term rates.

Bessent tried to talk the 10-year down. The 10-year left the message on read.

US10Y ended last week at the same level where it started. 

Druckenmiller joined the debate this week with his op-ed in WSJ, criticizing Bessent's attempt at controlling the 10Y, and suggesting the only way out is to control the primary deficit.

The thing is… rate sensitive names like homebuilders and utilities were showing signs of bottoming. 

(They stopped going down in lock step with the long-end increasing.)

No intervention was necessary. 

When the government steps in with a heavy hand, it can spook investors who start to think ‘Was there a problem I was not aware of?’

I was surprised Bessent went down this path. 

Since his intervention, commodities are now out-running the S&P. 

And, no, I don’t see it as a coincidence. 

Gold topped when Warsh, viewed as a hawk, was nominated. 

Bessent reignited the ‘debasement’ trade. 

Maybe you get lower long-term yields via forceful intervention. 

But, Mr. Market exacts a price by boosting commodity inflation. 

Not worth it.

Kevin Warsh gave his first Jackson Hole keynote on Friday, on his 100th day as Chairman.

The highlight of the conference was the following quote:

"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do."

'Work to do' was not a neutral phrase coming from a central banker. And, markets made up their minds on what it meant.

September hike odds went to 57.0% by Friday's close, up from 40% a week ago.

The dollar index gained 0.5%, after staying under-pressure for the entire week.

The major damage was somewhere else.

Gold and Bitcoin had been ripping on the assumption that the Fed would eventually stand behind the long end after the Treasury buyback. 

Warsh’s comments hit that sentiment like a rock.

Spot gold fell ~3% to $4,500 on Friday, after printing a record $4,700 on Tuesday. Silver also fell 4.2%.

Gold miners took it worse than the metal.

GDX was up nearly 40% MTD going into Friday morning, its best month since 2020. Within twenty-five minutes of Warsh speaking, precious metals miners were among the worst-performing names in the market.

Bitcoin did the same thing. It had approached $81,500 on Thursday, got rejected, and closed the week below $80,000.

Back in Jackson Hole, Warsh mentioned the breadth of inflation bothers him more than the headline.

Of the 199 components in the PCE basket, 54% have posted price increases above 3% over the past year, against a pre-pandemic average of 32%.

Now, the part nobody traded.

Warsh was upbeat on everything except prices.

He highlighted business capex is running around 9% on a four-quarter basis, the fastest since 2021. He attributed more than half of this year's growth to the AI buildout. 

Warsh also remarked S&P 500 profits are up over 20% YoY. Credit spreads sit near the low end of their historical range. Both are significant positive signals on corporate’s financial strength.

On US consumer, he noted broad strength, with real spending up more than 2% over four quarters, which he flagged as carrying more signal than GDP.

On labor: "Labor markets are quite stable." Unemployment is at 4.1% with the four-week claims average nearing its lowest in decades.

So do we get a hike in September?

We don't think so.

The July vote was 9-3 to hold, and moving four votes in one intermeeting period is a big ask.

Two CPI prints, a PCE print and a payroll report should land before September 16. That is a lot of runway for a Chairman who just told the world he decides late.

Our base case stays no rate hike or cut in 2026. 

There are three certainties in life. Death, taxes, and Nvidia beating the quarter.

The only real question going in was whether the stock would be allowed to go up afterward.

This time it was.

Nvidia rose 8.7% on Thursday, adding more than $440 billion of market cap in a single session.

That was its first positive earnings-day move in five quarters.

Revenue came in at $96.2 billion against $92.2 billion expected, more than double last year. Growth accelerated for the fourth consecutive quarter. 

Data center revenue was $89 billion, up 117% YoY. 

Gross margins held at 75%.

Nvidia returned a record $26 billion to shareholders, $20 billion of it in buybacks.

Q3 is guided to $108 billion, more than 100% YoY growth. 

You can also read a summary of the earnings transcript at the Lumida Invest app. Our AI analyzes transcripts as soon as they are out, and curates all the insights in a 2-min read.

Download the Lumida Invest App now.

Colette Kress (CFO) opened with the demand backdrop:

"With cloud industry backlog now greater than $2 trillion, CapEx by the top-five hyperscalers is expected to reach nearly $800 billion in 2026 and $1.3 trillion in 2027."

Then the 2028 guide — the first time Nvidia has ever put a number on a full year in advance:

"We expect to grow revenue by approximately 70% in 2028. This is a supply-constrained outlook."

"The unconstrained [outlook] would be a lot higher. We grew 100% year-over-year this year."

"Incredibly, we are seeing demand acceleration even at our scale. Customers' forecasts point to our growth doubling next year."

And, on why customers keep signing: 

"I heard the other day that the return on investment capital [on datacenter investments] is now less than a year. And we're talking about $50 billion data centers."

Remember we mentioned how Google’s capex drives its ROIC - that’s Jensen confirming it. 

Now, the crack.

There was one item buried in the balance sheet commentary that deserves more attention than it got.

Days sales outstanding rose from 45 days to 60. Free cash flow conversion fell to 22% from ~60% even as revenue doubled.

The reason? Nearly $50 billion was invested into the frontier labs. 

Jensen explained “The [AI labs] are growing faster than what their balance sheets and credit profiles can support.”

“NVIDIA is needed to help power this flywheel.”

Nvidia also arranged financing with Apollo, BlackRock, Blackstone, Brookfield, Goldman and KKR to raise over $500 billion of third-party capital for the frontier labs. 

Management preempted the obvious objection: "We recognize the scale of this support, and we know some will call this circular financing. We see it differently."

“We're going through a major computing platform shift, the creation of one of the most important technologies in human history, and these are once-in-a-generation companies.”

“Their customer traction and usage are skyrocketing. We expect them to become the largest technology companies in history.”

Jensen says some will call this circular financing. Every vendor who has ever 'invested' in a customer says the same thing.

A question for Jensen:

What would happen to these once-in-a-generation companies if enterprises cut their AI spend, Google and Microsoft develop competing LLMs, and Chinese LLMs take away larger market share?

That’s a discussion for some other time.

Let’s go back to the surface now, please point out to me exactly where the bubble is that Ray Dalio is worried about.

Nvidia trades at a forward earnings multiple below the S&P 500.

At the March 2000 top, the Nasdaq Composite traded around 90x earnings, and a good chunk of the index had no earnings at all to divide by.

Today, the largest company in the world is growing revenue 100%, converting it at 75% gross margins, returning $26 billion a quarter, and trading at a discount to the index.

You can argue the AI trade gets ahead of itself. But a bubble is when price runs away from fundamentals.

Here the fundamentals are running away from the price.

We continue to stay overweight on Nvidia. 

The bear case has changed.

The noise around stocks being expensive has started to subside. Nvidia trades below the index. The multiples across sectors are defensible.

So, the argument has shifted to the denominator.

The new claim is that this isn't a valuation bubble, it's an earnings bubble. 

The argument: circular financing among the AI companies is inflating S&P 500 profits, so the E in P/E is fake, and the multiple only looks reasonable because the earnings are borrowed from each other.

It's a clever argument. It's also testable.

Start with the number itself.

S&P 500 operating EPS grew nearly 50% YoY in Q2.

Strip out the non-cash mark-to-market accounting gains, and earnings growth was still 25.7%.

Historically, you only see growth like that coming out of a recession.

Now, how circular are these earnings?

If AI companies were passing money between themselves to manufacture index earnings, you would notice it in earnings breadth.

In that case, a handful of names would have been carrying the aggregate earnings, and everything else would be flat or falling.

The opposite is happening.

The percentage of S&P 500 companies with positive earnings growth is 86.6%. Revenue growth breadth also sits at a similar level, 85.8%.

These numbers show the breadth of earnings. Both are near previous cyclical highs.

Six of every seven companies in the index are seeing positive earnings growth. That does not happen when a dozen AI names are doing the lifting.

Profit margins also came in strong at 17.7%, an all time high.

Earnings are growing because margins are expanding on top of growing revenues.

See the following chart

So, what is driving the growth in revenues and earnings?

A solid economic engine.

The Atlanta Fed model estimates Q3 real GDP growth at 4.6%, revised up from 4.0%.

The GDP revision was driven by a growth in consumer spending, revised up to 3.1% from 2.5%.

Gross private domestic investment was also raised to 14.5% from 13.7%.

And, the consumer is getting more confident, which helps future demand.

The share of consumers saying jobs are plentiful edged higher in August to 27.0%, while the share saying jobs are hard to get fell to 19.5%.

This is the piece the doomers keep missing.

People who think they can get another job spend money. People who think they can't, don't.

Confident consumers keep the revenue line growing. Growing revenues let corporates keep investing. Corporate investment keeps hiring going. And hiring keeps consumers confident.

The engine is humming.

But, it doesn’t end here. Margins have another leg – AI Productivity, which is yet to show up in the P&L.

The bear case requires earnings to be fake. The data says earnings are broad, revenue-backed, and about to get help from productivity.

GPT was a chat bot. Cute. 

Claude Cowork did work. Transformative.

Grok Bot does work autonomously and continuously. Wow. 

What’s exciting now is the Application Wave is set to accelerate. 

And when you peek under the hood, there are a lot more than two startups leading. 

End users are about to see a ton of value from Consumer and Enterprise AI apps. 

Instinct is one example. 

Interestingly, we, at LumidaWealth, are building these Autonomous Agents for wealth management. 

The next leg of the AI transformation is just getting started.

Meet our AI avatars, who cover market highlights every day non-stop.

Dan Ives argues that regulation, not AI capability or capex, is the biggest risk to the AI sector, with China policy, domestic infrastructure build-outs, and power constraints shaping the next phase of growth.

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Dylan Patel argues that AI labs will increasingly allocate compute to training rather than inference because the economic value of building more capable models can outweigh the revenue generated from serving external customers.

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Sam Altman argues that early AI safety predictions were too pessimistic, and that OpenAI’s real-world deployment approach—shipping models, learning from usage, and iterating on failures—has produced far more progress and safety than many expected.

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