🕺 Tariffs gone?

Together with Percent 

Good morning investors! The market threw a major shocker yesterday when a federal court struck down President Trump’s reciprocal tariffs. The court said that the President exceeded “any authority granted” by the International Emergency Economic Powers Act.

The tariffs addressed in the suit are now ordered to “be vacated and their operation permanently enjoined,” per the ruling.

The suit was brought on behalf of five U.S.-based businesses that rely on imports. However, the administration has already appealed the decision.

This news set the market on fire with most sectors jumping after the bell. Tariff-hit names like Apple and Target were particularly up.

Today we cover:

• Fed meeting minutes

• Nvidia beats

• More earnings (HP, Salesforce)

Just in: Elon Musk quits Trump administration, departs from DOGE:Says, 'time as Special Govt Employee comes to end, DOGE mission will strengthen over time'

📊 Economy and News 

Federal Reserve Adopts Cautious Stance on Rates Amid Tariff and Inflation Concerns

As we know, the Federal Reserve, at its May 6-7, 2025, meeting, opted to maintain the federal funds rate at 4.25%-4.5%, citing uncertainties in fiscal and trade policies. However, minutes are now out and they shed more light on the situation.

Officials expressed concerns that tariffs could exacerbate inflation, complicating interest rate decisions. Despite solid economic growth and a balanced labor market, risks of weakening employment were noted.

The Fed emphasized a cautious approach, awaiting clearer inflation and economic outlooks.

Post-meeting, U.S.-China trade tensions eased, sparking a Wall Street rally, though bond yields rose. Fed Chair Jerome Powell resisted political pressure to cut rates, with markets expecting no change until September.

Discussions also touched on the Fed’s policy framework, questioning the efficacy of flexible average inflation targeting in volatile economic conditions, while reaffirming the 2% inflation goal.

Global hits:

• India’s industrial output surpasses expectations in April.

• South Africa GDP growth outlook gets biggest cut since early 2023; SARB to trim rates.

• Japanese 40-year bond auction sees weakest demand in nearly a year.

• Wages in Singapore grew 3.2% in 2024, fewer firms planning increase in 2025.

Bit about Europe: German unemployment rises faster than expected in May – 34,000 versus 10,000. On the other hand, Bulgaria likely to get EU Commission go-ahead to adopt euro from 2026. And, Turkey inflation seen dipping to 36.1% in May, monthly rate 2%.

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📈 Stocks

S&P 500 5,888.55 (-0.56%)
DJIA 42,098.70 (-0.58%)
NASDAQ 19,100.94 (-0.51%)
BRENT CRUDE 64.90 (+1.26%)
* Prices as of May 29th, 12:20 AM UTC

Nvidia Surges on Strong AI Chip Demand Despite China Setback

Nvidia's earnings exceeded expectations; here are the figures:

• Revenue: $44.06B (vs. $43.31B expected, up 69% YoY)

• Adjusted EPS: $0.96 (vs. $0.93 expected)

• Data Center Sales: $39.1B (up 73% YoY, 88% of total revenue)

• Other Divisions:

  • Gaming: $3.8B (up 42% YoY)

  • Automotive/Robotics: $567M (up 72% YoY)

  • Visualization: $509M (up 19% YoY)

A very important metric was the U.S. export ban on H20 chips to China that led to $4.5 billion in inventory charges and $2.5 billion in lost sales, slashing gross margins to 61% from a potential 71.3%.

This caused the company to report two adjusted EPS with adjusted earnings before the H20 adjustment came in as a miss, $0.81/share vs. estimates for $0.91. But investors seem to be focused on the win.

It, however, sold $2.5B in H20 chips before the ban and anticipates an $8B loss next year due to chip restrictions. Also, a $0.01/share dividend will be paid on July 3rd.

Nvidia projects $45 billion in current-quarter sales, below LSEG’s $45.9 billion estimate due to the China restrictions.

The stock climbed +6% in extended trading (as expected by our readers who remain bullish on the stock), nearing a four-month high. If you had bought the stock as we covered in this week’s Pro issue, you’d be sitting on an 8% profit. Don’t worry if you missed this opportunity, there will be many more.

In fact, if you had bought this a year ago when we suggested, you’d have about 19% profit. Ensure you don’t miss out on these opportunities by upgrading to the PRO today where you receive weekly signals, deep insights, and more for only $19 per month.

While Nvidia did great, there may be trouble for some other chip stocks as Cadence and Synopsys shares fell nearly -11% and -10%, respectively, after the Financial Times reported that the U.S. Commerce Department’s Bureau of Industry and Security ordered them to halt sales to China.

More earnings:

• Abercrombie & Fitch beat expectations on the top and bottom lines but slashed its profit guidance as it prepares for the impact of tariffs. The company is now expecting full-year earnings per share to be between $9.50 and $10.50, down from a previous range of between $10.40 and $11.40. Abercrombie expects tariffs currently in effect to reduce its earnings by $50 million.

• HP reported better-than-expected revenue, but the company missed on earnings and issued disappointing guidance causing the stock to fall -11%. The company said its outlook “reflects the added cost driven by the current U.S. tariffs,” as well as the associated mitigations. HP CEO Enrique Lores added that the company has increased production in Vietnam, Thailand, India, Mexico and the U.S.

• Macy's Q1 adjusted EPS was $0.16, beating $0.14 estimates, with revenue down 5% to $4.6B, slightly above forecasts. Comparable sales fell 2%, but Bloomingdale's and Bluemercury performed strongly. Macy's lowered its full-year profit forecast to $1.60–$2.00 per share from $2.05–$2.25 due to tariff concerns.

• Salesforce beat expectations and raised guidance. Moreover, the company said it has agreed to pay $8 billion for data management software maker Informatica, which would be its largest deal since Slack in 2021. The company reiterated guidance for 9% growth in subscription and support revenue, given some contribution from Agentforce.

💵 Personal Finance

Bank of America’s Framework for Evaluating AI-Driven Software Companies

Bank of America’s framework assesses software firms’ potential to thrive in the AI landscape using these key yes-or-no factors:

1. High-Quality Data: Does the company have top-tier, unique data? Data fuels AI innovation, providing a competitive edge.

2. Large User Base: Does the company have an extensive user base? More users generate more data for product enhancement.

3. Global Reach: Does the company operate internationally? Global firms can upsell AI products widely.

4. Diverse Revenue: Can the company generate revenue from various sources? Diverse use cases enhance AI integration.

5. R&D Investment: Is the company investing heavily (over $1 billion) in R&D? Drives future AI innovation.

6. Sector Leadership: Does the company provide leading solutions for specific sectors? Niche dominance maximizes AI benefits.

7. Freemium Offerings: Are there freemium services to attract customers? Encourages uptake of paid AI products.

8. Data Governance: Is the firm compliant with regulatory standards? Critical for navigating AI regulations.

9. Sales Channels: Does the company have effective sales coverage? Enhances cross-selling of AI features.

In addition, the framework highlights some red flags:

1. Consumer Focus: Is the company primarily consumer-serving? B2B customers are more loyal.

2. Mergers & Acquisitions: Does the company rely heavily on M&A? Organic growth ensures centralized data.

3. Transaction-Based: Are solutions transaction-based? Workflow-oriented solutions are more AI-resilient.

4. AI Threat: Could AI pose a direct threat? Vulnerability to competitors’ AI adoption weakens position.

Using these, BoA has identified some top AI players that include HubSpot, Salesforce, Workday, CCC Intelligent Solutions, ServiceNow, Microsoft, Oracle, Adobe, Shopify, and Datadog.

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