Nvidia Is Selling Shovels in a Gold Rush, Why the Fed Can’t Compete. And 5 Other Things to Know Before Markets Open.

Perhaps the best analogy is the California gold rush in the 19th century. As the saying goes, the people who make the most money are the ones selling shovels.

That’s what Nvidia is doing. Artificial intelligence is the gold mine. It’s not obvious which companies will make the biggest fortunes from AI, but they’ll need the high-powered chips Nvidia offers just to get started.

That’s why the stock appears to be such a sure thing—the only issue that seems to be holding Nvidia back is whether it can make enough semiconductors to meet demand that’s still growing faster than expectations. Although in time it will surely face fierce competition as rivals catch up.

The company’s results far outshadowed minutes from the Federal Reserve, which suggested interest-rate cuts may still be a long way off. If AI hype and the highest interest rates in decades are having a wrestling match, AI appears to have the Fed in a headlock.

Of course, historical references for the current frenzy will draw comparisons for how it all ends. Obviously, the dot-com boom led to a spectacular bust. The Roaring 20s were worse, culminating in the Great Depression.

But the end of the California gold rush wasn’t that dramatic. It came to a close when silver was discovered in neighboring Nevada, merely sending prospectors trying to strike it rich to a different destination.

—Brian Swint

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Chip Maker Extends Streak of Beating Expectations

Nvidia
demonstrated that momentum from a sales boom spurred by artificial intelligence is still strong, tripling sales last quarter and forecasting better-than-expected revenue for the current one. CEO Jensen Huang said accelerated computing and generative AI has hit a tipping point, with demand surging everywhere.

• Fourth-quarter revenue reached $22 billion, beating expectations. It forecast $24 billion of sales for its current quarter and pointed to surging demand from its data-center business, where sales jumped fivefold from a year earlier.

• Nvidia said the rise in data-center results reflected higher shipments of Nvidia Hopper chips, which are used for the training and inference of large language AI models and generative AI applications. Large cloud computing providers accounted for more than half of the data-center revenue for the quarter.

• Chief Financial Officer Colette Kress said in written commentary that Nvidia’s sales of data center chips to China dropped significantly in the fourth quarter because of tightened U.S. restrictions on sales there. The commentary didn’t outline the size of the drop.

• In gaming, Nvidia’s fourth-quarter revenue of $2.9 billion rose 56% from a year earlier. In its professional visualization section—which deals with systems that require intense graphics processing, such as 3-D design—revenue doubled to $463 million, and in its automotive division revenue fell 4% from a year earlier to $281 million.

What’s Next: Kress said demand for future Nvidia products is robust. The company expects next-generation products to be supply constrained as demand far exceeds supply, she told analysts. The next AI chip, the B100, is expected to be released in the coming quarters.

—Tae Kim and Liz Moyer

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Fed Officials More Worried About Cutting Rates Too Soon

Federal Reserve officials signaled worries about cutting interest rates too soon rather than keeping them too high for too long, according to January’s meeting minutes. Futures markets see a nearly 94% probability rates will hold steady after March’s Fed meeting, which follows the release of more jobs and inflation data.

• Fed officials said they want to see more evidence that inflation is trending lower before budging on interest rates, the minutes from the Fed’s last meeting showed. Even though they judged that the policy rate was likely at its peak, policymakers weren’t ready to cut.

• Higher-than-expected January inflation data, released after their last meeting, interrupted the decelerating price growth trend seen for most of last year. The last time the Fed raised rates was in July—to between 5.25% and 5.50%. It has held them steady since then and is expected to cut this year.

• Futures markets see the probability that the rates will remain in that range through the next three policy meetings at around 27%. That prediction has been ticking higher in the past week, according to the CME’s FedWatch tool—which sees a more than 50% probability of a June rate cut.

• J.P. Morgan Chief Market Strategist Marko Kolanovic said the risk of a trade war with China could lead to a second significant wave of inflationand market selloff. He even suggested in a note that the current “goldilocks” economy, which features decent growth and slowing inflation, could change into something more like the stagflation seen in the 1970s. At that time, expansion was weak while inflation rates were high.

What’s Next: Fed officials also began thinking about slowing the pace of reductions to the central bank’s holdings of Treasury debt and mortgage-backed securities. The Fed is currently scaling back its balance sheet at the rate of $60 billion a month for Treasuries and $35 billion for mortgage-backed securities.

—Nicholas Jasinski and Janet H. Cho

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Japan Stocks Highest Since 1980s. Buffett Called It Right.

Japan’s Nikkei stock index finished at a record high on Thursday. The last time that happened, the Cold War was just ending and Band Aid was topping the charts with Do They Know It’s Christmas?

• The Nikkei closed up with a 2.2% gain for the day—higher than the last record set on Dec. 29, 1989. “The Nikkei has refound its mojo but it’s been a long time coming,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

• In the early 1990s, Japan suffered a nasty real estate crash that tanked the wider economy and sent it into an extended period of falling consumer prices. An aging population made matters worse. Things finally turned around as the Covid-19 pandemic ended, injecting inflation into the system and forcing companies to become more productive and profitable.

• Billionaire investor Warren Buffett noticed the growing strength of Japanese companies and bought up big stakes in the country’s trading houses, which are conglomerates that play an influential role.

What’s Next: Given the optimism about Japan’s economy, its emergence from decades of deflation, the signs that the central bank will provide plenty of stimulus, stocks are poised to keep going higher. The next challenge for Japan is how quickly it can pull out of the recession it fell into in the second half of last year.

—Brian Swint

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Rivian Forecasts Disappointing 2024 Production as It Cuts Workers

Electric-vehicle start-up
Rivian Automotive
is cutting 10% of its salaried workforce and forecasting lower-than-expected production for 2024. CEO RJ Scaringe cited challenging macroeconomic conditions for slowing demand—including high interest rates and more expensive vehicle payments.

• The company expects to build 57,000 trucks and SUVs this year, about the same number as last year. Analysts had expected Rivian to produce 66,000 vehicles, including for
  Amazon.com
  delivery vans. Other auto makers, including
  General Motors
  and
  Ford Motor,
  have scaled down EV investments.

• Rivian had a fourth-quarter adjusted loss of $1.36 a share, slightly below expectations, while revenue nearly doubled to $1.3 billion. The company said it is making progress on lowering costs and sees a modest gross profit in the fourth quarter of 2024.

• Separately,
  Lucid,
  another EV start-up, beat expectations for the fourth quarter but also disappointed with production guidance. Lucid delivered 6,001 units in 2023, which was up from the prior year. It expects to produce 9,000 vehicles this year, but Wall Street anticipated 12,000.

• One sticking point for potential EV buyers is the availability of chargers and charging stations.
  ChargePoint,
  which has the largest network of EV chargers in North America, is seen expanding to 447,000 plugs by 2026, up from 225,000 last year, said Benchmark analyst Mickey Legg.

What’s Next: Rivian said in a letter to shareholders it will unveil its platform for next-generation R2 vehicles in March, including a midsize SUV. Production is set to begin in 2026, and the new vehicles are expected to be priced lower than the current generation.

—Janet H. Cho

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Boeing Shifts 737 MAX Management After In-Flight Blowout

As it overhauls its quality-control process after last month’s in-flight blowout of part of a passenger plane’s fuselage,
Boeing
has shaken up the leadership in its commercial division. Katie Ringgold, formerly in charge of 737 deliveries, is taking over the 737 program from Ed Clark, who is leaving the company.

• It is part of a broader management reorganization. Ringgold is also taking charge of the Renton, Wash., site where 737 MAX jets are made and which Clark oversaw since 2021, when he was put there to help Boeing recover from two deadly MAX jet crashes.

• Ringgold’s old job hasn’t been filled, the company said. Boeing also named Elizabeth Lund to a new position overseeing quality control for its commercial planes. Stan Deal, the head of Boeing’s commercial airplanes group, told employees about the changes.

• Boeing wants to boost production of 737 planes but since the Jan. 5 incident involving an
  Alaska Air
  flight it has faced additional scrutiny from the Federal Aviation Administration. Deal told employees the changes will help ensure every plane the company delivers meets or exceeds requirements.

• Richard Aboulafia, a managing director at consulting firm AeroDynamic Advisory, told Barron’s that promoting from inside Boeing was better than bringing in outsiders from other industries. Clark spent 18 years at the company.

What’s Next: Regulators won’t let Boeing increase 737 production until they are convinced about quality control in its factories. The FAA is undertaking an audit of Boeing that could result in changes to its MAX production schedule.

—Liz Moyer and Al Root

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner