On Monday, we looked at this trend break in the euro.

This technical breakdown in the euro was significant, because the 20% rise over the past year was driven by Europe’s commitment to “rearming” — rebuilding its hard power.  The global investment community saw this as pro-European asset prices.  Europe would be spending.  Europe was back. 

And by the middle of last year, Christine Lagarde, head of the European Central Bank, used the opportunity to promote the euro as having the potential to supplant the dollar as the world reserve currency.  She implied that the eroding trust in the dollar was “the global euro moment.”

Similarly, we have this declining trend in Italian 10-year bond yields over the past three years.  This represents borrowing costs for the most fiscally fragile major European country. 

The falling trend in this chart was driven by European rate cuts, falling inflation, the “Europe is back” narrative and (related) assumptions that the spending would spur a transformation in the European economy (i.e. reduced sovereign debt risk).

So, despite its 137% debt-to-GDP, Italy has been borrowing at rates cheaper than the U.S.

That said, the trend has broken here too.  Italian yields are breaking out — in the country most vulnerable to rising borrowing costs.

So, the euro broke down on the first trading day of the U.S./Iran war. 

And in day four, Italian bond yields broke out. 

And this next chart is key to both …

In 2022, Russia disrupted Europe’s pipeline gas supply, and it took three years and hundreds of billions of dollars to build an alternative — primarily through LNG imports from Qatar.  This week, that alterative went offline — Qatar’s total production has halted, removing about a fifth of global LNG from the market. 

So, Europe’s backup supply has failed. 

This means more expensive energy is coming for Europe.  And that’s inflationary for an energy importing continent. 

The market is starting to price in an about face by the European Central Bank on the direction of interest rate policy. 

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We looked at this chart of the euro last week.

This big trendline broke today.

And this line is significant. It represents the 20% rise in the euro from early last year, driven by Europe’s bold goal of “re-arming” (a near trillion-dollar defense spending aspiration).

We’ve talked about the pressure Trump is putting on Europe. He has restructured the relationship with Europe, and therefore the architecture that Europe has created dependencies on.

He’s restructured trade.  He’s restructured defense.  He’s restructuring the monetary architecture (when the Trump appointed Fed Chair arrives).  And he’s restructuring energy.

Europe doesn’t have an answer for any of them (at least not on the timeline that matters).  

And the financial stress created by each of these economic pillars just got accelerated over the weekend.  

With the U.S. attack on Iran, the costs to self-fund Europe’s present and future just went up.

Related, we have a big breakout in crude oil prices as the markets open this week — the break of a three-year downtrend.  Middle east oil supply disruption tends to lead to higher energy prices.   

Yesterday, we talked about Nvidia’s $68 billion quarter.  The chip supply wall has finally broken over the past two quarters.  As such, data center revenue growth is back.  

But if Nvidia is to fulfill on the demand Jensen has said is on the books for the next four quarters, global manufacturing capacity will have to have another step-change higher. 

If that happens, Nvidia would likely have around $130 billion revenue quarter by the end of this calendar year.  It would be growing at a triple-digit rate again (year-over-year).  Apply the current 60%+ net income margin to that size of revenue, and the stock (at a $4.5 trillion market cap) would look very cheap (a forward P/E in the low-to-mid teens)!

If the chip supply bottleneck has truly been broken, then Jensen’s formula of “compute equals revenue” (which fuels more compute which fuels more revenue) become constrained only by the physical stuff — scarce inputs like electricity, uranium, copper, fiber optic glass, land.

With this in mind, let’s talk about a few other comments of note, from Jensen’s earnings call yesterday.

First, he said “every data center is power constrained.”  And with that, he says data centers have to carefully choose the architecture (the AI systems) that maximize “performance per watt.”  He says Nvidia wins on that front, “unquestionably.”      

So, access to power determines whether Jensen’s AI formula (compute equals revenue) continues to work.

And that’s why Elon has said in the age of abundance, power/energy will be the true currency.  

The more abundant intelligence becomes, the more valuable the scarce inputs become. 

Let’s talk about Nvidia earnings.

In my note yesterday, we talked about the 2026 revenue pipeline — half-a-trillion-dollars worth (that’s 2026, calendar year).

Jensen revealed last October that the demand was on the books already.  But fulfilling it was/is a different story.  It would take significant expansion of global manufacturing capacity.

With that, we had evidence in Q3 that Nvidia’s growth was back (after seven quarters of stagnant growth) — that supply was opening up.

And we got more confirmation of that today, from Q4.

Here’s what the quarterly revenue change looks like now.

That said, to fulfill on Jensen’s half-a-trillion-dollar (datacenter revenue) target by the end of the year, manufacturing capacity will have to have another step-change — and soon.

But, what’s rapidly carrying more of the growth load for Nvidia’s data center revenue is networking.

Compute (Nvidia’s GPUs) gets all of the attention.  But networking growth is exploding.  It did $11 billion last quarter — up 34% quarter-over-quarter, and 3.5x year-over-year.  Nvidia is now (maybe) the largest ethernet networking company in the world.

Keep in mind, this is all Q4, prior to the game changer on February 5th.

What happened on Feb. 5th?

On that single day, two of the most important AI companies in the world released models that represented a big leap in model capabilities.

Anthropic released Claude Opus 4.6, with autonomous agent teams that can manage entire workflows in parallel. Not answering questions. Doing the work.

Twenty minutes later, OpenAI fired back with GPT-5.3-Codex — a model that helped build itself.

And then, almost overnight, an open-source personal AI agent called OpenClaw went viral. People began running autonomous AI assistants on their laptops, around the clock, with access to their files, their browsers, their messaging platforms.

This is the moment AI crossed from “AI can think” to “AI can act.”

On that note, on the Nvidia call, Jensen proclaimed that the ChatGPT moment of Agentic AI has arrived.

What else did he say?

He said this line over and over:  “compute equals revenue.”

He’s saying the capex boom isn’t stopping.  Because with each unit of compute added into the world, it’s generating tokens, and tokens are generating revenue.  And revenue equals more capex. It’s proving productive for the consumer, and profitable for the datacenters.

It’s a self-reinforcing loop.

And this new phase of “always-on” AI agents, means more and more economic output, higher productivity, and (related) higher potential economic growth.

That brings us back to Elon’s thesis — his view that humanoid robots and autonomous AI will ultimately remove any meaningful limit on the size of the economy.

The logic is simple: if the cost of labor approaches zero, economic output has no ceiling.

We’ve talked about the Trump administration’s desire for change in Europe.  It has everything to do with countering China’s influence, and restoring U.S./European alignment.

Meanwhile, the Europeans have doubled down on failed policies.  So has Canada.  And Canada, the European Union and Australia have, in recent weeks, talked up the idea of a new “global order” where they could combine forces to become a “third pole,” to match U.S. and China powers.

They’re missing a very important consideration: The world is already in a two horse race for AI supremacy (and they aren’t one of the horses).

As the CTO for Palantir has said, “the AI race is a winner takes all.”

The winner will set standards, attract talent, and determine what technology gets embedded into governments and critical infrastructure.  And that will mean the difference between AI that serves humanity, or AI that controls humanity (serving the interest of the Chinese Communist Party).

As you can see in this chart, the race is very, very tight.  

And if we listen to the guy that runs the company that’s in the lead (Dario Amodei at Anthropic), this growth curve for model intelligence is about to go vertical — the AI is good enough to improve itself (and direct machines) such that progress starts going vertical. 

This is why, at the AI Action Summit in Paris last year, JD Vance rejected the EU’s “global” AI agreement — because it would slow the innovation and hand to global leadership torch to China.  Instead, he said partner with the U.S. or “chain your nation to an authoritarian master” (i.e. China).

Last week, we talked about Europe’s scramble to convince the world it can credibly pursue “strategic autonomy” (in the words of Christine Lagarde, ECB President) — self-funding their defense, energy and AI buildout, without restarting the European sovereign debt crisis of 15-years ago.

Beyond Trump’s use of tariff and military security bargains to influence change in Europe, there’s a more immediate and combustible bargaining chip coming in May — the U.S. financial security chip.  

Under a new Trump-appointed Fed Chair, if implicit U.S. financial support (like access to dollar liquidity) becomes “conditional” for Europe, then they have a problem.  It would quickly expose the liquidity and then solvency vulnerabilities.

That’s why European leaders are pre-emptively running a confidence management campaign, promoting big plans, aggressive timelines and promises.

But why put that pressure on a critically important Western ally?  

As we’ve discussed over the past year, the Trump administration’s desire for change in Europe has everything to do with countering China’s influence, and restoring U.S./European alignment.

Remember, we’ve looked at this Pew Survey several times over the past year.  As you can see, China has gained significant influence over Europe, and largely stemming from its role in bailouts, following the sovereign debt crisis in Europe more than a decade ago.  

This leads us to this Marco Rubio’s speech this past weekend at the Munich Security Conference.

Marco didn’t hold any punches.  He formalized the move from “implicit” to “conditional” support — by calling out Europe’s “foolish” policies on climate, migration, deindustrialization as anti-sovereignty and self-harming.

He reset the alliance on the basis of “reciprocity and seriousness.”

He evoked the history of “godless communist revolutions” and terminal decline of the 1940s Europe.

And he said the U.S. seeks “renewal and restoration” of Western civilization.  This was an invitation to do it together — “join us.” 

Otherwise, the message has become clear that Europe is not entitled to automatic U.S. backstops (Trump’s leverage).

And as JD Vance said last year at the AI Action Summit in Paris, just days into the Trump administration’s term, partner with the U.S. or “chain your nation to an authoritarian master” (i.e. China).