AI Boom, Fed Rates Will Determine This Market Rally. How Both Face Power Struggles.

(ANGELA WEISS/AFP via Getty Images)

The stock market rally hinges on two very different power struggles—one affecting the artificial-intelligence boom and the other determining whether the Federal Reserve will cut rates again this year.

If the AI trade does collapse, or even start to unwind, what holds it back will likely be a supply issue—a lack of power to keep up with the seemingly insatiable demand.

CoreWeave CEO Michael Intrator said demand for its AI cloud platform “far exceeds available capacity,” on the company’s earnings call this week. The revelation that one of its data center developers had fallen behind schedule appeared to alarm investors as the stock tumbled. Microsoft CEO Satya Nadella also said recently that a shortage of electricity and data center capacity was an issue.

Demand, at least for now, is not a problem. AMD set out annual revenue growth of more than 35% over the next five years at an analyst day in New York on Tuesday. That was better than Wall Street’s estimates. Fellow chip maker Nvidia is likely to reinforce that view next week when it reports earnings, especially as CEO Jensen Huang revealed more than $500 billion in chip orders through 2026. Foxconn, which makes AI servers for Nvidia, also struck a bullish tone in its earnings early Wednesday.

The Federal Reserve has its own power battle ahead of the central bank’s final interest-rate decision of the year next month. A split is emerging between officials over whether or not to cut, The Wall Street Journal reported.

The absence of data due to the government shutdown is one factor—but the real dilemma pits the weakening labor market against stubbornly sticky inflation. The presence of Trump-appointed governor Stephen Miran on the committee along with Fed Chair Jerome Powell’s impending departure in May further complicate the dynamic.

If the Fed does cut rates, and the AI boom avoids any major hiccups—the stock market can surge higher.

—Callum Keown

*** Don’t miss Barron’s insights and analysis. Add us as a preferred source on Google.

***

SoftBank Dives Further Into OpenAI, Funded By Nvidia Stake

Even as more people are questioning the heavy investment in artificial intelligence, Japan’s SoftBank is pouring into the space. SoftBank founder Masayashi Son has been one of OpenAI’s most prominent backers, and now SoftBank has shed a big investment in AI chip maker Nvidia to bankroll that investment.

• SoftBank disclosed that it sold the $5.83 billion Nvidia stake in October, marking a shift in the longstanding relationship with the chip maker. But the move had nothing to do with Nvidia, according to SoftBank CFO Yoshimitsu Goto.
• SoftBank has been leading a $40 billion investment in OpenAI, with plans to syndicate $10 billion to co-investors. On Tuesday it said co-investors had committed to the entire syndication amount, and that it will invest an additional $22.5 billion in OpenAI through its Vision Fund 2 in December.
• Son’s bet on OpenAI has been lucrative so far —SoftBank’s quarterly net profit more than doubled, helped by the revaluation of its OpenAI stake and its shares have more than doubled this year. Son has said he expects OpenAI to go public within the next few years.
• It isn’t the only splashy AI move on Tuesday. Advanced Micro Devices CEO Lisa Su projects AMD’s revenue to grow more than 35% a year over the next three to five years, from a $34 billion baseline for 2025. That forecast beats expectations.

What’s Next: AMD’s AI data center revenue is projected to gain an average of 80% over the same three to five years, executives said during a company event. CFO Jean Hu said there’s a “clear path” to more than $20 in annual EPS by 2028, nearly double current expectations.

— Adam Clark, Tae Kim, and Janet H. Cho

***

Shutdown Nears End, But Travel Stocks Face Turbulence

The longest shutdown in U.S. history could soon come to an end, with the House expected to vote on a funding package to reopen the government on Wednesday. But the travel industry will be dealing with the repercussions well into the peak holiday season.

• The Senate passed a stopgap funding measure to reopen the government late Monday, voting 60-40 in favor. The bill has now been sent back to the Republican-controlled House for a final vote, and it will then go to President Donald Trump’s desk. Trump told reporters earlier this week that he supported the “very good” deal.
• Air-traffic controllers have been working without pay throughout the shutdown, which has placed strain on the airline industry. The FAA initially cut planned flights by about 4% last Friday. It aims to ramp up to 10% fewer flights by the end of this week.
• It remains unclear if the FAA will reverse its decision. Transportation Secretary Sean Duffy has said while air-traffic controllers could receive back pay as soon as 48 hours after the shutdown ends, it is unlikely that normal flight patterns would be immediately reinstated.

What’s Next: It isn’t just airlines that will be affected—hotels, rental car services, and even some cruise lines are telling investors that the reduction in flights will have a knock-on effect on their fourth-quarter earnings. Mark Hoplamazian, CEO of Hyatt Hotels, said in a Nov. 6 earnings call that a reduction in air travel “by definition” means there are fewer people flying and thus needing to stay at a hotel.

— Sabrina Escobar, Callum Keown and George Glover

***

Rate Cuts Aren’t Helping All Consumers. That’s Bad for Spending.

Hopes that interest rate cuts by the Federal Reserve will reinvigorate consumer spending may not play out. The households most sensitive to borrowing costs are also being hit with new tariff-driven price increases and slowing wage growth. Any boost from lower rates may not arrive in time.

• Wealthier consumers continue to spend. But while rate cuts usually help lower-income consumers by reducing the cost of credit and boosting monthly cash flow, the structure of household debt (most of it fixed-rate) plus elevated prices for essentials and a lack of outsize wage gains are partially blocking those benefits.
• Wage gains for low-wage workers are now at near-parity with the latest inflation readings, which means purchasing power is flattening. Pandemic-era savings have been depleted, and consumer debt has risen, especially among lower-income borrowers. That is reflected in loan delinquencies.
• Third-quarter household debt rose $197 billion, to $18.59 trillion, the New York Fed said. Credit card balances rose $24 billion from the previous quarter, to $1.23 trillion. The number of subprime borrowers at least 60 days behind on auto loans has doubled since 2021, Fitch Ratings says.
• About 85% of household debt is fixed-rate, according to Morgan Stanley. Lower Fed rates don’t automatically lower monthly payments. Credit cards are an exception but the benefit is small. A one percentage point cut in the Fed rate lowers card rates by only about two-thirds of that amount.

What’s Next: Retailers are growing more sensitive to the cash crunch households are feeling. Target cut prices on 3,000 food, beverage, and essential items. The National Retail Federation notes that holiday shoppers will be looking for deals, and may cut back day-to-day spending to be able to afford gifts.

— Nicole Goodkind and Sabrina Escobar

***

Sony Group Rides Popularity of Anime Film, Raises Outlook

Japanese electronics and entertainment company Sony Group raised its full-year earnings forecasts after its strong second quarter, riding the momentum generated by its latest Demon Slayer anime movie. It also sees a smaller than expected hit from tariffs for the year through March.

• Demon Slayer: Kimetsu No Yaiba - Infinity Castle has sold $591.4 million globally since its July 18 release, including $133.5 million domestically, according to BoxOfficeMojo, boosting Sony’s studio business. Overall, second quarter net profit rose 6.7% to the equivalent of $2.02 billion.
• Sony Chief Financial Officer Lin Tao called the film a major cultural achievement for Japanese entertainment content, and said Sony will continue turning original works into animation or live-action movies.
• Sony said it sold 3.9 million PlayStation 5s in the quarter, slightly higher than the year-ago quarter, and despite raising its recommended U.S. retail price for PS5 consoles by $50 to $549.99. But operating profit fell 13% in local currency from a year ago.
• Sony now expects a U.S. tariff burden of 50 billion yen, or about $324.4 million, on operating profit for the year. That is down from an earlier estimate of 70 billion yen. Full year revenue is projected to be 12 trillion yen.

What’s Next: Paramount Skydance’s fourth-quarter and 2026 revenue forecasts were higher than Wall Street had expected, partly because it is raising prices for its Paramount+ streaming service. Management wouldn’t comment on questions about reports that it is trying to buy Warner Bros. Discovery.

— Janet H. Cho and Angela Palumbo

***

Oklo Progresses on Nuclear Fuel Facility; Still No Revenue

Nuclear power start-up Oklo has gotten heat for not generating revenue, and now it is reporting a wider operating loss than a year ago as it drums up business. The Energy Department has approved a nuclear safety design agreement for its planned fuel fabrication facility at the Idaho National Laboratory.

• Oklo reported a loss of 20 cents a share for the third quarter, worse than expected and up from a loss of 8 cents a share a year ago. Oklo didn’t report any revenue, and its net loss of $29.7 million was greater than expected.
• The proposed plant will fabricate fuel for Oklo’s first commercial-scale powerhouse, the Aurora-INL, which was selected for the DOE’s Reactor Pilot Program in August. The fabrication facility itself was chosen for a separate project at the end of September.
• CEO Jacob DeWitte called the development a clear marker of progress. Oklo shares have soared 409% in a year on optimism for its fast reactors and the broader nuclear sector in the face of soaring power demand. It has yet to get approval for a first nuclear plant, however.
• Separately, Fermi, which is building one of the largest data-center power projects in the U.S., is behind on negotiations for its first major tenant, but it said it was still aiming to start generating power in 2026.

What’s Next: Fermi didn’t name the possible tenant, but called it an investment grade company that has a letter of intent to lease part of Project Matador for at least 20 years, with several five-year renewal options. Project Matador in Texas houses the Donald J. Trump power plant for AI data centers.

— Mackenzie Tatananni and Janet H. Cho

***

Dear Quentin,

My husband, 71, and I, 66, are retired, with total combined assets of $1.5 million, plus our house, which is worth around $700,000. We have no debt, have been living in our present home for about six years now and we are thinking about selling it and downsizing because the house is big and the maintenance, property taxes, insurance and HOA fees are getting too high.

If we sell it, we can invest the money and probably rent another small house or a villa or condo on the beach. We are in Florida. The problem: The places I like on the Gulf Coast and facing the beach that I would like, cost over $5,000 a month for an annual lease and they are not even that nice. I am afraid to make a mistake and sell my house for a two-bedroom rental.

Leaving Florida is out of the question for us. We would like to sell the house because as we are getting older and we do not need a large house anymore, our kids visit us maybe twice a year. The problem is we wouldn’t know where to go, and we are afraid to waste the money we get from selling our house on rent.

— Downsizing Couple

Read the Moneyist’s response here.

— Quentin Fottrell

***

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