We talked yesterday about Jensen Huang’s presentation showing the production of software going vertical over the past few months — the “$9 trillion of productivity from $3 trillion of salaries.”

And we ended by looking at the San Francisco Fed’s report on total factor productivity, which decelerated in the first quarter, to 0.60%.

Let’s talk about that gap.

Jensen focused on AI usage.  For the past year, “token consumption” has been celebrated in Silicon Valley. Big companies (particularly big tech) took a clear strategic position: press the gas pedal on AI to the floor (i.e. burn tokens). 

They turned usage into a scoreboard. Companies like Uber, Meta and Amazon ranked engineering teams by token consumption (the more, the more celebrated).

What’s the problem? A high token count doesn’t tell you a lot got done. It tells you a lot got used.

When you reward people for consumption, the meter just runs.  But you don’t necessarily solve problems, ship products, reduce costs, or create value.

And the tell, at this point, is in the recent behaviors of these same companies — they are cutting back on, or setting limits, on usage. 

The Fed’s Q1 number on total factor productivity reveals that story (it decelerated, not accelerated). It doesn’t confirm a productivity boom, at least yet. 

But it’s early. We’ve seen the investment. We’ve seen hesitation, at the enterprise level. Now we’ve seen aggressive adoption and experimentation. We’re seeing some waste. Now maybe some refinement, discipline and productivity gains.

With all of the above in mind, we get the May jobs report on Friday. Is the AI building phase increasing labor demand, or is AI visibly replacing labor? 

Is AI proving “useful” as Jensen positioned it? Or is it just getting used a lot? 

Another weekend, another deal that was supposed to be close.

Going into it, the framework was reported as all but done. Trump said the deal to reopen the Strait of Hormuz was close.

The market heard “close” and treated it as done. Oil eased. Stocks lifted.

And again, nothing.

We’ve seen this plenty of times now over the past three months.

A conciliatory headline. A market that wants to believe the pressure is over.

The reality on the ground remains: an energy supply shock. 

So what actually happened?

Trump’s terms are inflexible. He wants Iran’s enriched uranium dug up and destroyed, the Strait open immediately, and Iran agreeing it will never have a nuclear weapon.

That said, we already know these conditions. And it’s safe to assume that anyone on the other side of the negotiation with ties to the old regime would never agree to them. 

Indeed, a senior Iranian official told Reuters they never agreed to hand over the uranium at all. 

The shooting resumed. The deal fizzled again — because the terms are about ceding control of all leverage (oil and nuclear).

As we’ve discussed, this is the Venezuela model.

The oil can flow, but not on the old terms, and not back to the old hands. A deal, in this framework, doesn’t mean withdrawal. It means control.

Let’s talk about the Fed.

On Sunday night, Jerome Powell accepted a “Profile in Courage” award. In his acceptance speech, he “warned” that if an administration removes Fed officials over policy, the Fed loses its most priceless asset, its credibility.

Let’s revisit what “independence” looked like under Jay Powell. 

For the better part of two decades, the Fed has been anything but independent from fiscal policy. It financed Capitol Hill spending to the tune of trillions of dollars, through QE. Kevin Warsh (the new Fed Chair) has a name for it — “fiscal policy in disguise.”

And the Powell Fed was anything but neutral.

Remember, in Trump’s first term, Jerome Powell mechanically raised rates into a low inflation, recovering economy. Not only was it a headwind to the economy, it induced a liquidity shock.  

Then, Powell called inflation “transitory” in 2021. And he held rates at zero while prices ran at a four-decade high pace. It was the transitory lie that gave the Democrat-led Congress the cover to push for trillions more in spending (to fund the climate and social agenda).

So, the “independent” Powell-led central bank was, in practice, the financing arm of the government.

What Powell is now defending, is the Bernanke/Yellen/Powell Fed regime, under the guise of “independence.”

Warsh was hired to end that old regime — to restore independence, by shrinking the balance sheet, by ending QE as a permanent tool, and by ending the Fed’s financing of the deficit.

The boom loop we’ve been discussing for the past few months continues to materialize in corporate earnings.

More compute. More revenue. More profit. More compute (…). 

We’ve seen it in the earnings of chip and memory stocks. 

Now, it’s broadening. 

Let’s step through the AI stack.

Start with the chips.

As we’ve discussed in these notes, Nvidia put up another huge quarter — almost $82 billion of revenue in a single quarter, more than ten times its revenue of three years ago (and guided to $91 billion for the next). Its CFO told the market AI infrastructure spending is now on track to reach three to four trillion dollars a year by the end of the decade. 

Those chips have to be built.

Taiwan Semiconductor, which manufactures the most advanced ones in the world, reported a 20% jump in revenue in a single month and greenlit $45 billion in new capacity.

The chips can’t compute without memory.

Micron posted $23.9 billion in its most recent quarter, up 196% from a year earlier, and guided to a record $33.5 billion quarter at margins near 80%. Moreover, Micron has already sold out its entire 2026 production of these chips, under binding contracts. This week, the valuation crossed $1 trillion.

The chips also produce oceans of data that needs to be stored.

SanDisk reported $3 billion in a quarter and then followed it with a $5.9 billion quarter — a near doubling of revenue in ninety days.

Then the data has to be organized and put to work.

This week, Snowflake (the data-cloud company) reported product revenue of $1.33 billion, up 34%, the strongest quarterly dollar growth in its history. It raised full-year guidance, signed a $6 billion infrastructure deal with Amazon, and told us the number of customers using its AI tools jumped from 9,100 to 13,600 in a single quarter. The stock rose 37% in a day.

The AI applications need a database to run on.

MongoDB just reported revenue up 25%, its cloud database growing 29%, as it positions itself as the working memory for the coming wave of AI agents. It raised guidance too. The stock trading up as much as 36%. 

And all of it has to run on servers.

Today, Dell reported an AI server backlog of $51 billion, after AI-server revenue grew 757% compared to the same quarter last year. It raised its target for this year toward $60 billion. The stock rose 40%.

So, while the daily headlines argue tenths of a tick in inflation and the price of oil, every single layer of the AI stack is telling this story: accelerating demand, raised guidance, and not enough supply.

This is the boom loop we’ve been describing, broadening across the entire AI stack — which should broaden across the entire economy.

As we’ve discussed over the past three years, AI is indeed making the pie bigger. The trillion-dollar valuation club is indeed growing.

In a world racing toward abundance, you want to own the scarce things that abundance can’t exist without.

That’s what our two portfolios are built around. Our AI-Innovation Portfolio owns the scarce physical inputs the buildout cannot exist without — the power, the fiber, the connectors, the chip equipment, the network edge. Our Billionaire’s Portfolio owns the still-undervalued producers of the hard assets that feed it — the copper, the gold, the oil and gas, and the legacy technology being revalued as AI-critical infrastructure.

Two portfolios driven by one thesis. If you’re not yet a member, it’s a good time to get positioned for what the stack just told us is coming.

Learn more here. 

Yesterday, we talked about Trump’s Iran strategy, and how he has repeatedly referenced the “Venezuela model“– take control of the oil, fund the country and the restructuring, prevent the re-emergence of the old regime.

With that in mind, Trump held a cabinet meeting this morning. And in the middle of it, he turned to Marco Rubio and asked, “Cuba and Venezuela, what’s going on there?”

Rubio said Venezuela is in “a three-phase process … stabilization, recovery, and transition.”

Then he walked through the mechanism.

Since January 3, over 10 million barrels of Venezuelan oil have been delivered to the United States. He said, the industry is being “professionalized for the first time ever.”

The crude is sold “in the market at market rates.” And “the money is going to an account in the United States controlled and monitored by Treasury, audited by KPMG. And it’s for the first time ever, the money’s not being stolen. It’s going to the benefit of the Venezuelan people.”

That’s the Venezuela model stated by the Secretary of State. A Treasury-controlled account. KPMG audit. Market sales. Revenue restructured away from the regime, toward the people.

As we discussed in my note yesterday, this model applied to Iran would have to involve controlling Kharg Island (the terminal that moves the overwhelming majority of Iran’s crude). 

Is that why Bessent has said he expects crude prices to be “lower than pre-conflict levels when this ends” (his exact words today)? 

The U.S. Department of Treasury already controls Iran’s money. The U.S. Department of War controls the travel of oil. And with that, there’s no need for a big kinetic seizure. Time does the work (as Trump has said, “time is on our side”). 

Trump wants cheap gas. And cheap gas requires controlling the swing capacity and the chokepoints. That means Iran and Venezuela under the same architecture, with the Saudis and Abraham Accords members under the “aligned partner” architecture already negotiated.  

Another weekend, another deal that was supposed to be close.

The anticipation built across the weekend included “talks,” “good signs,” a “framework” near.

And again, nothing.

Instead, the U.S. struck Iranian sites, and Iran is now calling those strikes a violation of the ceasefire. We’ve seen this movie plenty of times now over the past three months.

Remember, back in my May 11 note (here), we talked about the Netanyahu interview with 60 Minutes. He said the war isn’t over — “it’s not over because there’s still nuclear material, enriched uranium that has to be taken out of Iran.”

Trump reiterated that last night, posting that the enriched uranium would need to be turned over and destroyed, or destroyed in place under inspection.

Until it happens, we should view the conciliatory headlines as theater, and the strikes as substance.

And the other key factor: oil.

Oil is the tool, the leverage, the revenue that funds the regime, the proxies and the weaponry. It’s the lever Iran has always used to manufacture instability in the global economy.

This is why “a deal” seems unlikely. Trump has pointed, repeatedly, to Venezuela as the model. And in Venezuela the U.S. effectively controls the oil — to fund the country and restructuring, and to prevent the re-emergence of the old regime.

For Iran, this model would include taking control of Kharg Island (the terminal that moves the overwhelming majority of Iran’s crude). And it’s hard to imagine the current Iranian counterparts coming to any agreement like that.

For now, time does the work. The export machine continues to choke and revenue collapses. 

Let’s talk about the Fed.

Kevin Warsh is on the job, sworn in Friday.

Warsh has said, repeatedly, that the Fed should talk less — less forward guidance, less telegraphing, fewer officials shaping markets with words.

Yet, what does the Fed calendar show for Warsh’s first week? A long line of Fed governors with public speaking engagements. The leadership has changed. The question is, how entrenched is the culture?

We may get some signals on that this week. 

Still, as we discussed last week after Nvidia’s earnings, the largest industrial buildout in modern history is underway. It’s funded, profitable and accelerating. Against that tsunami, the day-to-day market noise looks like ripples on the surface.

We saw it again today — another new record high for stocks, led by AI infrastructure, and the scarce physical inputs that feed it.

We have 25 stocks in our AI-Innovation Portfolio, focused on the companies powering this AI infrastructure buildout — for what Elon has called a coming economic “tsunami.” We have been positioned for it since June of 2023, but the buildout remains in the early stages. If you haven’t joined us yet, you can do so here …

Let’s talk about Nvidia earnings.

It was three years ago, almost to the day, that Nvidia reported a growth shock that changed the world.

Remember, Jensen Huang told us that the world was beginning a trillion-dollar transition from general purpose computing to accelerated computing. And he said it started with the ChatGPT moment (the launch of OpenAI’s generative AI model, which crystallized productization of AI). 

He said the demand for Nvidia’s AI data center chips was so steep that the growth he just reported (in May of 2023) would be even bigger the following quarter. Moreover, he said the hyper-growth would continue for the foreseeable future.

That was the Nvidia moment. It was the moment the world realized AI was about to reinvent computing.

With that, the transformation has been bigger and faster than Jensen predicted. Still, there has been plenty of doubt about the significance and the durability of the AI revolution along the way. 

Then we had a series of “moments” earlier this year, that gave clear signals that the entire AI ecosystem wasn’t just sustaining, it was removing the ceiling on what is thought as possible for the economy.  

First, it was data storage. Sandisk reported $3 billion in revenue and then guided to $4.4 to $4.8 billion for the very next quarter — a 50% sequential leap in 90 days. The same shape as Nvidia’s famous 2023 guide. It was the moment the world realized AI doesn’t just need chips. It needs endless storage to hold the oceans of data those chips produce.

The Nvidia moment for storage had arrived. 

Then it was the chips themselves.

Taiwan Semiconductor, the company that manufactures the world’s most advanced semiconductors, reported a 20% jump in revenue in a single month, in what is normally a quiet, post-holiday lull. At the same time, its board greenlit a $45 billion plan to build more capacity. The bottleneck was starting to break.

The Nvidia moment for chips had arrived.

Then (in his Februrary earnings call) Jensen named the next moment himself. He said the “ChatGPT moment of agentic AI” had arrived.

Consider what that phrase means.

Not the Nvidia moment, but the ChatGPT moment (like, the beginning!). 

“Agentic” AI is moving the AI revolution into another gear. It’s the difference between AI as a tool a person uses, and AI as a worker that operates on its own.

And it’s always on, and always inferencing (always reasoning, producing output).

This is why in his February earnings call, Jensen said this line over and over: “compute equals revenue.”

Today, he said “it is very clear compute is revenues.”  Then he added, “compute is profit.”

Nvidia is proving that. 

The numbers in Q1 were jaw-droppers. Almost $82 billion of revenue in the quarter. That’s more than 10x the revenue of just three years ago. Almost $38 billion of revenue growth from the same period just last year. This, with net income margins in the mid 50s(%). 

Then there’s the guide. Nvidia told the market to expect $91 billion next quarter — another double-digit jump.

And Nvidia’s CFO told analysts that AI infrastructure spending is now on track to reach three to four trillion dollars per year by the end of this decade. 

That’s three to four trillion dollars, annually.

We’ve watched this estimate climb in real time. Last October, Jensen said there was half a trillion dollars of demand visible. By March, he had raised it to a trillion. Tonight, they put it at a three-to-four-trillion annual run rate.

With that, as we’ve discussed here in my notes, the day-to-day noise ( the rate guessing, the tariff headlines, the market swings on a given afternoon) is a conversation about ripples on the surface.

Underneath the surface, the largest industrial buildout in modern history is funded, profitable, and accelerating.

Yesterday, we talked about the repricing in the bond market — driven by a Fed regime change, which includes the end of forward guidance and the end of the implicit global backstop (no longer automatic, but ‘conditional’).

Today, we got to see ‘conditional’ materialize. 

Scott Bessent was in Paris, delivering the keynote at the No Money for Terror conference. He told the room of global policymakers and financiers this:

“The United States is hardly alone in facing the scourge of terrorism, especially from Iran. Yet, too often, we seem to be alone in our resolve to thwart it.” 

He then called on Europe, by name, to take action and expose Iran’s financing networks — unmask shell and front companies, shutter bank branches, dismantle proxies.

And he called on partners in the Middle East and Asia to root out Iran’s shadow banking networks (the China-Iran financial pipeline).

But this “alone in our resolve” statement was clearly aimed at Europe, along with “no room for excuses.”

We’ve talked about the Trump plan to restructure global trade and realign the world (away from China, back toward the U.S.), anchored by “burden sharing” — where allies and trading partners pay for access to safety (U.S. security guarantees), stability (the dollar and U.S. capital markets), and markets (U.S. consumers).

These are all no longer automatic, but conditional — conditional based upon alignment. 

And Bessent is making it clear that alignment includes: designate, expose, shutter, and dismantle Iran’s financing.

Or, stay ambiguous, as Europe has to this point, and discover what “conditional” looks like in practice.

And we’ve talked about the levers that Trump, Bessent and the new Fed Chair can pull to force political alignment — through consequence, not argument.

Withdraw all the backstops.

Let the bills come due (i.e. defense). Let the energy shock expose Europe’s energy dependence. Let the European financial system work through stress without the Fed’s dollar liquidity assistance.

Let the political class face the consequences of the costs their voters are no longer willing to pay.

With all of that said, remember, the endgame isn’t Iran. It isn’t Europe. It’s China.

And the China trip has become the trigger for phase two of the Trump administration’s effort to align Europe.

With Europe aligned, the global pressure can be applied to China, in coordination — to economically isolate China, further weaken its global influence, and end its multi-decade predatory economic strategy that nearly ushered in global dominance of the Chinese Communist Party.

Jerome Powell’s term as Fed Chair officially ended last Friday. He’ll continue in the role until the new Fed Chair, Kevin Warsh, is sworn in this coming Friday. 

But the bond market is already pricing a regime change.

German 10-year Bund yields broke out to 15-year highs at 3.19%. UK 10-year Gilt yields hit 18-year highs at 5.20%. The U.S. 10-year traded as high as 4.63% today — the highest level since days before Trump was sworn into office last year.

Remember, the Warsh doctrine is smaller balance sheet, lower rates (“AI is going to make everything cost less”), and true structural reform – to break the entanglement of the Fed with government financing.

If we listen to what Warsh has been saying since the summer of last year (when Trump began to turn the screws on Powell and Warsh’s name emerged as the Trump candidate), the days of the Fed backstopping bad fiscal policy and bad corporate behavior, via quantitative easing, should be over.

The fiscal dominance that’s been funded by the Fed for the better part of the past 18 years should give way to fiscal discipline (with crisis management given back to the Treasury).  

In this regime, the distortion of markets and outcomes created by QE is over. That should ultimately be good for dollar assets, good for the reserve currency status of the dollar.

So why are rates moving up?

Because the structural change under Warsh removes the Fed’s thumb from the scales.

Powell’s Fed manipulated outcomes through QE (outright buying assets) and through its “forward guidance” (shaping market opinion with words and forecasts, to create outcomes the Fed wanted). 

This new Fed regime is about less manipulation, less telegraphing, less Fed demand for long-dated Treasuries, more dissent and more volatility.

With that, the bond market is figuring out where yields should be, without the Fed’s thumb on the scales. Even if this Fed regime and the Treasury strike an accord to restore fiscal discipline, the bond market will doubt it, until proven otherwise.

Now, the biggest change under Warsh will be the Fed’s role on the international stage. The era of global coordinated central banking, led by the Fed, is likely over.

For fifteen years, the Fed has been the implicit backstop for sovereign debt fragility — not just in the United States, but globally. Through dollar swap lines. Through emergency asset purchase programs.

With Warsh (with the Trump-led Fed) that backstop is now conditional.

That’s why European rates are breaking out to highs not seen since the most intense days of the global financial crisis.