Nvidia Raised the Ceiling. Inflation Raised the Floor.

GOOD MORNING, Wall Street spent Wednesday worrying about inflation, then Nvidia changed the conversation after the bell. July PCE inflation held at 3.7%, slightly hotter than expected, pushing the implied odds of a September Fed hike higher and leaving the major indexes modestly lower. Hours later, Nvidia reported $96.2 billion of quarterly revenue and, more importantly, projected roughly 70% revenue growth for the fiscal year ending January 2028 — far above what Wall Street had been modeling. The AI demand story just got a longer runway. The macro problem did not go away.

MARKETS | TLDR

Stocks slipped before Nvidia reported: The S&P 500 fell 0.38% to 7,718.60, the Nasdaq lost 0.29% to 26,506.99 and the Dow dropped 0.51% to 53,414.25 after hotter-than-expected inflation data strengthened the case for another Fed hike.
Nvidia jumped after the bell: Shares rose nearly 5% in extended trading after the company forecast about $108 billion of third-quarter revenue and said preliminary fiscal 2028 revenue growth could reach roughly 70%.
Oil fell as Hormuz talks offered some relief: Brent settled 0.84% lower at $87.84 a barrel and WTI slipped 0.16% to $82.23 as investors weighed Iran-Oman negotiations over the Strait of Hormuz against still-restricted shipping flows.

AI RUNWAY

Nvidia Just Made the AI Slowdown Call Harder

Nvidia reported second-quarter revenue of $96.2 billion, up 106% from a year earlier, with Data Center revenue reaching $89 billion. The company expects roughly $108 billion of revenue in the third quarter and offered an unusually long-range signal: preliminary fiscal 2028 revenue growth of about 70%. Wall Street had been modeling something closer to the mid-40% range. Shares rose nearly 5% in extended trading after initially dipping.

That matters because the market's AI debate has moved beyond whether demand is strong today. Investors have been asking how long hyperscalers and AI labs can keep increasing capital spending after several years of explosive infrastructure growth. Nvidia's forecast is effectively an argument that the compute cycle is not approaching a near-term peak. CEO Jensen Huang framed the shift directly: AI workloads are moving from experimentation toward productive use, making compute itself an economic input rather than a speculative buildout.

The caveat is supply and margin pressure. Nvidia warned that memory shortages could constrain how quickly it converts demand into shipments, while gross margins are expected to bottom around 71%-72% in the fourth quarter as component costs rise. The earnings report therefore strengthens the demand thesis without removing the bottlenecks. The next question is whether the rest of the AI stack — memory, networking, power and data centers — can scale fast enough to support the growth Nvidia is now forecasting.

INFLATION FLOOR

Inflation Stopped Falling. That Changes the Fed Math.

The Federal Reserve's preferred inflation gauge held at 3.7% in July, unchanged from June and slightly above the 3.6% economists expected. It was the 65th consecutive month above the Fed's 2% target. The same release showed second-quarter GDP growth at 1.5%, leaving the economy soft enough to complicate policy but not weak enough to make inflation easy to ignore.

Markets reacted by increasing the implied probability of a September rate hike to about 44%, from roughly 36% just before the data. That is the key transmission mechanism for equities: if inflation refuses to cool, the Fed has less room to support growth, even while corporate earnings remain strong. For high-duration assets such as expensive technology stocks, a higher expected policy path raises the discount rate applied to future cash flows.

The data does not force a September hike on its own. Morgan Stanley Wealth Management's Ellen Zentner told Reuters that the report was not enough to shift the decision by itself, but subsequent data moving in the same direction could increase pressure on the Fed. That makes Kevin Warsh's Jackson Hole speech on Friday more consequential: Nvidia just raised expectations for AI earnings growth, while inflation is raising the hurdle rate those earnings must clear.

HEADLINES

Hormuz negotiations push oil lower: Iran and Oman continued discussing arrangements for the Strait of Hormuz, helping push Brent below $88, but Tehran still tied a full reopening to broader U.S. concessions — so the inflation relief remains conditional.
The S&P 500 still has earnings behind it: A Reuters poll of strategists put the year-end index target at 7,900, with second-quarter S&P 500 earnings growth running above 30%; the bullish case increasingly rests on profits outrunning valuation and rate pressure.
The Fed trade moved before Warsh spoke: Fed funds futures lifted the odds of a September hike after the PCE print, showing that Friday's Jackson Hole speech begins with markets already leaning more hawkish.
Small caps quietly outperformed: The Russell 2000 rose 0.25% even as the major large-cap indexes declined, suggesting Wednesday's weakness was not a simple broad risk-off move and that positioning ahead of Nvidia mattered.
Oil inventories offered little fresh direction: U.S. crude inventories rose by just 95,000 barrels, less than analysts expected, leaving geopolitics — rather than domestic stockpiles — as the dominant driver of near-term energy pricing.

UPCOMING

Kevin Warsh at Jackson Hole — August 28: The Fed chair's first Jackson Hole address will show how much weight policymakers put on persistent inflation versus slower growth after July PCE came in above expectations.
Marvell earnings — August 27: Marvell provides another read on custom AI silicon, networking and data-center demand — useful confirmation for whether Nvidia's stronger outlook is spreading across the broader infrastructure stack.
JOLTS — September 1: July job openings will be an early test of whether labor demand is cooling enough to offset the Fed's inflation problem.
August payrolls — September 4: The jobs report will be one of the final major labor inputs before the September Fed meeting and could determine whether today's higher rate-hike odds persist.

DEEP INSIGTHS

NVIDIA Q2 FY2027 Results

The primary release is worth reading for more than the revenue beat. Data Center sales rose 117%, Q3 guidance reached roughly $108 billion and the company's preliminary fiscal 2028 outlook extends the AI-demand thesis well beyond the next quarter while also flagging memory supply as a constraint.

U.S. Personal Income and Outlays

The PCE release is the cleanest way to separate the inflation story from the market reaction. The important signal is not one monthly surprise alone, but that the Fed's preferred gauge remains materially above 2% while growth is still positive — the combination that keeps the policy trade unusually sensitive to each new data point.