Ed Yardeni is calling the current AI surge the “To null and Beyond!” rally. The memory-related stocks, like Micron Technology (MU) and Seagate Technology (STX), have been especially hot this week. also got AI investors excited after it announced on Tuesday that its latest quarterly sales rose 122.6% to $10.24 billion compared to $4.6 billion in the same quarter a year ago. The analyst community was expecting sales of $12.38 billion and operating earnings of 62 cents per share, so the company posted a 17.3% sales miss and a 34.5% earnings surprise.
What really got investors excited was that Super Micro Computer provided quarterly sales guidance of $11.75 billion (above the analyst consensus estimate of $10.92 billion) and earnings guidance of 72 cents per share (above the analyst consensus estimate of 56 cents per share). Furthermore, the company’s operating margins have resumed expanding, and for its current quarter, Super Micro Computer is estimating 6.1% operating margins, up from 3.2% a year ago.
The positive payroll report bodes well for Friday’s payroll report. ADP on Wednesday reported that 109,000 private payroll jobs were created in April. This was above economists’ consensus estimate of 84,000 and also the largest monthly increase in the past 15 months. Small businesses with fewer than 50 employees added 65,000 jobs in April, while large businesses with over 500 employees added 42,000 jobs. For some reason, mid-sized businesses with 50 to 499 employees only added 2,000 jobs in April.
The Fed telegraphed in its most recent Federal Open Market Committee () statement that it is still open to an additional key interest rate cut, despite a minority of objections. America’s dominance is strengthening the U.S. dollar and causing the prices of many commodities and imports to soften, which is, in turn, deflationary. AI productivity gains are also deflationary. Since the Fed cannot control energy prices, I expect that Warsh will strive to convince the FOMC that more key cuts are necessary.
Treasury Secretary Scott Bessent and incoming Fed Chairman Kevin Warsh certainly have their hands full now that the federal government’s cumulative debt exceeds 100% of . There has been talk that Bessent and Warsh may explore coordinated action to push lower. This is just Wall Street gossip, since Warsh must first get more members on the FOMC to agree with him. However, as more central banks conduct quantitative easing (i.e., money printing) due to shrinking demographics in Asia and Europe make balancing bloated government budgets harder, the U.S. will have some flexibility. Whatever Bessent and Warsh do, they do not want to weaken the U.S. dollar, since a strong dollar is naturally deflationary, because it lowers the price of commodities (priced in U.S. dollars) and imported goods.