The Overnight Report: Nvidia Boosts AI Trade

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This story features NATIONAL STORAGE REIT, and other companies.
For more info SHARE ANALYSIS: NSR

Oil prices spiked on concerns peace talks were breaking down, but the S&P500 and Nasdaq moved higher as Nvidia's new RTX Spark chip provided ongoing momentum to the AI trade.

After the Australian market tracked sideways yesterday –with technology and software stocks in  fashion below the surface– ASX200 futures are pointing to a softer start on Tuesday morning.

Good Morning,

The ASX200 tracked sideways on Monday awaiting further news on the Middle East. Healthcare fell -1.7% while Technology outperformed, up 5.4%.

After the close of US markets, Hewlett Packard Enterprise reported a strong earnings beat, following in the steps of Dell last week.

The stock is trading up 30% in the after market.

Alphabet announced its plans to sell US$80bn in stock including a US$10bn investment by Berkshire Hathaway.

Stay up to date on Australian earnings season, check out the Corporate Results Monitor:

https://fnarena.com/index.php/reporting_season/

Today’s Big Picture, J.L.Bernstein

Nvidia’s New Chip Lifts Tech to Records

Nvidia unveiled the RTX Spark, a chip built for AI laptops, at the Computex show in Taiwan.

Dell, HP, and Microsoft rose as its build partners.

Intel, Qualcomm, and AMD fell because the move lands in their backyard.

I think Nvidia just planted a flag in the one big computing market it didn’t already own.

Oil Climbs on Iran, Then Cools Off 

Iran’s state media said it was done negotiating with the US and would close the Strait of Hormuz over Israel’s fighting in Lebanon.

Crude ran higher on the threat. Then Trump brushed it off on CNBC, posted a productive call with Netanyahu, and oil gave back most of the gain.

Higher oil revived inflation worries, and traders have flipped from betting on Fed cuts to pricing in a possible hike.

Dealmaking Picks Up 

Berkshire Hathaway agreed to buy homebuilder Taylor Morrison for US$6.8 billion in cash, one of Greg Abel’s first big swings since taking over for Buffett.

Separately, Barry Diller’s People Inc. offered to buy the rest of MGM Resorts in a deal valuing it near US$18 billion.

I’m watching whether this kicks off more consolidation.

ANZ Bank, Australian Morning Focus

Risk sentiment pulled back earlier in the night when Iran reported it would halt negotiations in protest over fighting in Lebanon, but concerns eased somewhat after Trump reported he had arranged a halt to the fighting and that talks are still on.

The S&P500 was up 0.38%, the EuroStoxx50 was down -0.3% and the FTSE100 fell -0.7%. The yield on the US 10y Treasury note fell -1.2bp to 4.45%.

Oil prices rose, with WTI up 2.7% to US$92.2/bbl, pulling back from an overnight peak of US$94.78/bbl. Gold fell -0.8% to US$4,482.6/oz.

The optimism that had been building over the past week for a resolution to the conflict in the Middle East was dented overnight after it was reported Iran would halt negotiations with the US in protest over Israel’s offensive in Lebanon.

WTI oil initially rose to around 8.5% above its previous close after the news but has since eased back after Trump said talks are still on and that Israel and Hezbollah had agreed to cease attacks in Lebanon.

The May manufacturing ISM rose 1.3ppt to 54.0, its highest level in four years. The rise was led by the demand sub-indices, with new orders, new export orders and backlogs of work all rising. This suggests momentum will remain strong in manufacturing in coming months.

The prices index fell -2.5pts to 82.1. ISM noted that “the Prices Index reading is still being driven by (1) increases in steel and aluminium prices that impact the entire value chain, (2) tariffs applied to many imported goods and (3) increases in petroleum-based products as a result of the Middle East conflict”.

It will be a busy week for US labour market data, as May numbers are published for the ADP, national labour market report and end-April JOLTS data. Expectations are for an ongoing normalisation in hiring, with nonfarm payrolls expected to have risen 90k and the unemployment rate steady at 4.3%.

Expectations are that average hourly earnings growth fell to -3.4% y/y, continuing the gradual deceleration and down from 4.0% y/y 12 months earlier.

The expected level of wage growth is consistent with inflation returning to or below the 2.0% target over the FOMC’s forecast horizon and would imply no early evidence of second-round effects on wages from the Middle East conflict.

Where will the market focus now? Franklin Templeton, Taylor Topoussis, Chris Galipeau, extract

We remain constructive on equities and believe the market will continue to broaden. Small caps, value and emerging markets (EMs) all have the opportunity to outperform.

We maintain this call but also see opportunities in growth. After the recent run, we do not think it is wise to chase highs but would use pullbacks to add to the broadening theme.

Last week (May 22), the S&P500 Index completed its eighth straight positive week, gaining 17% over that stretch. As of Thursday, the index was on track to complete a ninth straight weekly gain.

Over the past 50 years, this is the tenth time the index has posted eight consecutive weekly gains. Only four streaks went beyond eight weeks, with the longest reaching 12 in 1985.

Historically, average forward returns after eight weeks of positive returns are 3.9% over the next three months, 3.6% over six months, and 11.3% over 12 months. Modest returns in the short term, but strong returns over the next year.

Since the end of March, the Magnificent Seven (Mag 7, the stocks of Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia and Tesla) have led the rally; these seven stocks are up 27% versus 13.3% for the Russell1000 Value Index and 19.5% for the Russell2000 Index.

But on a year-to-date (YTD) basis, the Mag 7 trails both value and small-cap stocks, with returns of 9%, 13.6% and 18.3%, respectively.

At this point of the quarter, 96% of S&P500 companies have reported first quarter earnings and it has been a strong period across most metrics.

Per Bloomberg data, 83% of companies beat earnings estimates, with the average beat on earnings-per-share (EPS) being 16.3%. The S&P500 EPS grew 27% year-over-year, led by information technology, which grew EPS 49%.

Earnings estimates for the rest of the year have also moved higher. The S&P500 estimate for 2026 is 9% above where it stood on January 1. At the sector level, technology earnings estimates are up 18%, materials are up 16% and energy up 57%.

Higher forward EPS explains much of the equity rally since March.

EMs, as measured by the MSCI Emerging Markets Index, are up 25% this year, beating the S&P500 by 14%, after doubling the S&P’s return in 2025. Our constructive view on EMs entering the year rested on strong earnings expectations for EM companies.

So far this year, earnings expectations have only increased, with the 2026 estimate now 26% above where it started the year, per Bloomberg data.

SpaceX has filed its S-1 for a public listing this summer. OpenAI and Anthropic are also expected to go public this year. Investors will scrutinize the financials of these companies as they file registrations to gain greater insight into the path of AI spending and revenues.

Per Pitchbook data, SpaceX last raised money in February at a post-money valuation of US$1.25 trillion, OpenAI in March at US$850 billion, and Anthropic on May 28 at US$965 billion.

If the companies list near those last valuations, they would rank number 9, number 14 and number 12 within the S&P500 in terms of market capitalization, respectively. Their financial disclosures and IPO demand could become broader market catalysts, but that could go in either direction.

Our bottom line: The fundamental backdrop for equities appears strong, particularly for US equities across size and style, and for EMs.

We believe it is prudent to reduce concentration, stay diversified, and use consolidation to your advantage.

CommBank FX Strategy: FX in the AI era: why the USD wins

AI reinforces the US exceptionalism narrative and case for USD strength.  The capex boom is concentrated in the US and will support US equity outperformance, lift US economic growth and inflation and keep US interest rates higher than otherwise.

We expect AI-related equity corrections to remain contained.  Periodic sell-offs may weigh on the USD temporarily, but the narrative about underlying US earnings, economic growth and investment should remain intact.

The main offsets to USD strength are the current account and terms of trade.  AI lifts both the volume and price of imported hardware and energy-intensive inputs, but these drags should be relatively small.

Higher global economic growth from AI will help high-beta currencies.  Supply-chain spillovers and higher commodity demand will benefit AUD, NZD and CAD, but we expect broad USD strength to dominate.

Corporate news in Australia:

• Elliott Investment Management has built up a $1bn stake in Northern Star Resources ((NSR))
• Playside Studios ((PLY)) shares fell -34% after Meta ceased its outsourced contracts and work on the Horizon Worlds social platform will end July 31, earlier than the December deadline
• Lendlease Group ((LLC)) booked a -$175m loss on the sale of its Milan MSG North development as part of its ongoing asset recycling strategy
• 4DMedical ((4DX)) expanded into Europe through the acquisition of Contextflow
• IFM Investors rejected Atlas Arteria’s ((ALX)) valuation criticisms and defended the merits of its takeover proposal
• ReadyTech ((RDY)) received an off-market takeover offer from Canadian software group TSS, a subsidiary of Topicus.com, four years after a previous failed private equity approach
• Foxtel has submitted a bid for full NRL broadcasting rights in an attempt to block Nine Entertainment ((NEC))
• Quadrant Private Equity is preparing a sale process for healthcare provider Partnered Health
• AGL Energy ((AGL)) and Someva are seeking investors for a multi-billion-dollar renewable energy development pipeline 
• Anthropic has confidentially filed for an IPO, joining OpenAI and SpaceX among the major AI companies preparing for public listings

On the calendar today:

-AU 1Q BoP

-AU April Building Approvals

-EZ May CPI

-US April jolts

-US May ISM

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

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