Nvidia Faces Lawsuit Amid AI Chip Frenzy as US Markets Hit New Highs

US Markets: A Tale of Two Tapes

Despite surging government bond yields, which typically make stocks less attractive by offering a safer return, US markets continue to push into record territory. The tech-heavy Nasdaq index has posted a fresh all-time high, but this strength is not universal and masks weakness elsewhere. The key question is how stocks can rally while the 10-year Treasury yield, a benchmark for borrowing costs across the economy, touches levels last seen in 2002.

The Profit Engine

The answer lies in corporate profits. Analysts now forecast that earnings for S&P 500 companies in the third quarter will grow by a massive 29.5% compared to a year ago. This powerful earnings growth helps to justify higher stock prices, even when safer government bonds are offering increasingly competitive returns. Because profits have grown so quickly, valuations haven't become excessively expensive by historical standards; the market's forward price-to-earnings ratio remains below its five and ten-year averages.

The Leaders and the Laggards

The rally is being driven almost entirely by a small group of giant technology companies. Nvidia, for instance, closed at a record high and is now approaching a massive $6 trillion valuation. This confidence is fuelled by indicators suggesting continued high demand for its AI products. The surge has also had a significant impact on the fortunes of major figures in the sector, with a notable jump in SpaceX's share price further bolstering the considerable net worth of CEO Elon Musk.

However, for every soaring tech firm, there is a struggling traditional company. Sportswear giant Nike just received another analyst downgrade, sending its stock towards a 13-year low as its turnaround efforts fail to gain traction. This split highlights a market that is increasingly dependent on a narrow set of winners.

A Warning on Index Investing

This concentration presents a hidden risk for passive investors. Many assume that buying an index fund, such as one that tracks the S&P 500, provides broad diversification. In reality, technology and tech-related companies now make up more than half of the S&P 500's value, meaning these funds are far more concentrated in a single sector than their labels suggest.

Headwinds and Headlines in the AI Sector

The artificial intelligence industry, a key driver of the recent market rally, is a battlefield of intense competition, legal friction, and growing regulatory pressure.

Nvidia's Mixed Fortunes

While its stock hits new records, chip-making giant Nvidia is facing a lawsuit from former engineers of the AI startup Groq. The legal action centres on Nvidia's $20 billion deal to acquire the company. The engineers claim that Groq's board sold key assets without a proper shareholder vote, alleging conflicts of interest among some directors. As startup employees are often paid with company shares, a victory for the engineers could establish a new precedent for how staff are treated in future technology deals.

At the same time, business momentum is strong. Its shares recently closed at a record high for the first time since May. Furthermore, recent results from AI server partner Foxconn suggest that demand for Nvidia's chips remains robust, giving investors confidence that its growth can continue despite its already enormous size.

AI Giants Face Scrutiny Over Safety

Senior executives from some of Silicon Valley's largest AI firms recently testified before a New York City Council panel about their safety plans. Google's director of AI policy stated she would support a "comprehensive" federal framework to address safety concerns. The hearing also featured warnings from former AI researchers, with one ex-Google DeepMind employee cautioning that a "misaligned" AI could pose a greater danger than foreign competition, while another whistleblower described the industry's current approach as "extremely reckless."

Cerebras and OpenAI Reaffirm Partnership

In more positive news for the sector, shares in fellow AI chipmaker Cerebras bounced back strongly. The recovery followed reassurances from OpenAI's Sam Altman that the two companies remain close partners. In January, OpenAI committed to purchasing $10 billion of computing power from Cerebras by 2028. The key challenge for Cerebras remains turning this significant deal into actual profit, as the company is not yet profitable.

Economic Headwinds Gather on a Global Scale

Beneath the surface of the market highs, key economic indicators are flashing warning signs in Europe and the United States.

US Inflation Proves Stubborn

Across the Atlantic, the service side of the US economy, which includes restaurants, travel, and healthcare, is expanding. However, this growth is accompanied by stubbornly rising prices. A recent survey from the Institute for Supply Management (ISM) showed its prices index hit 74.0, the highest reading since July 2022. This suggests that inflation is not cooling as quickly as hoped, driven partly by high energy and transport costs. The bond market has reacted, pushing the 10-year Treasury yield to a 52-week closing high of 5.32% before it eased back slightly.

This pressure is evident in several areas:

• Surging Airfares: US air ticket prices climbed 23.4% in August compared to a year earlier. This increase is largely being absorbed by soaring jet fuel costs, which are squeezing airline profit margins despite higher revenues.
• Rising Food Costs: Global food commodity prices have risen for the third straight month, hitting their highest level since late 2022. Companies like General Mills and Conagra are warning that higher ingredient and transport costs could hurt their future profits.

UK Job Market Enters Prolonged Slump

The United Kingdom's job market is experiencing a significant downturn, with companies reducing their workforce for 24 consecutive months. This two-year period of job cuts has now extended beyond the length of the slump seen during the 2008 financial crisis, signalling deep-seated weakness in the British economy.

German Industrial Weakness

Germany, Europe's industrial powerhouse, is also showing signs of strain. Factory orders plunged by 10.6% in August, a far steeper drop than expected. Although the decline was heavily skewed by a sharp fall in large transport equipment contracts, the data still points to underlying weakness in the continent's largest economy.

Corporate America Under the Microscope

Beyond market movements, several American corporations are facing pivotal moments, from massive mergers to high-stakes legal battles that could reshape entire industries.

Paramount's Risky Warner Bros. Merger Finalised

Following a dramatic bidding process, Paramount is expected to close its ambitious $110 billion acquisition of Warner Bros. Discovery today. The newly combined media giant will rebrand as Skydance and trade under the ticker symbol 'SKYD'. The new leadership team has been announced, with Mattel's Ynon Kreiz set to become co-CEO, while key news executives at CBS and CNN will remain. The new entity faces a difficult road ahead. It must integrate a much larger company, achieve very optimistic cost savings, and reduce a huge pile of debt, all while its largest business—traditional television networks—is in long-term decline.

General Motors Pivots Towards Hybrids

After pursuing an all-in strategy on fully electric vehicles, General Motors is now signalling a major shift. A senior executive confirmed that the carmaker plans to listen to customer demand for hybrid models, stating, "We’re not tone deaf to our customers." This change in direction acknowledges the growing popularity of hybrids and could have implications for the wider electric vehicle market.

Major Logistics Merger

In the transport and logistics sector, C.H. Robinson has agreed to purchase freight broker RXO in a $5.8 billion cash-and-shares deal. The move, struck at a 29% premium to RXO's recent share price, aims to create a combined company with an enterprise value over $25 billion. C.H. Robinson's shares fell on the news, a typical reaction for an acquirer in a large deal.

Key Battles Reach the Supreme Court

The US Supreme Court's current session has major implications for investors, with several cases involving big business on the agenda:

• Oil Giants on Trial: Companies including Suncor Energy and ExxonMobil are attempting to stop a climate lawsuit brought by the city of Boulder. A ruling against the oil firms could open the floodgates for dozens of similar lawsuits.
• Retirement Plan Shake-up: A case involving Intel will decide how easily employees can sue their company over the types of investments offered in their retirement plans.
• Apple's App Store Fees: The court is also reviewing a dispute over the fees Apple charges for purchases made outside its App Store, a case with significant financial implications for the tech giant.

Global Markets Update

Geopolitical shifts and political developments are creating distinct opportunities and risks in markets outside of the US and Europe.

Russian Gold Flows to Hong Kong

Western sanctions have dramatically redrawn the global gold trade. Russian gold, once destined for London, is now flowing into Hong Kong at a record pace. In the first seven months of 2026, Hong Kong imported over 112 tonnes of gold from Russia, already surpassing the record set for the whole of 2025. This highlights a major pivot towards Asian markets.

Brazilian Markets Rally on Election Surprise

Brazilian assets surged after right-wing presidential candidate Flávio Bolsonaro performed better than expected in the first round of the election. The main Brazilian stock index, the Ibovespa, jumped 7.70% to a record close of 206,912, its best day since March 2020. US-listed financial firms with large Brazilian operations, such as Itaú Unibanco and Banco Bradesco, also saw major gains as investors anticipated a more business-friendly political environment.

Commodities and Crypto Update

Oil Prices Retreat on Saudi Price Cut

Brent crude oil prices slipped below $100 per barrel after Saudi Aramco, the world's largest exporter, unexpectedly cut its official selling price for Asian customers in November. The move to a $5 discount, a six-year low, is being interpreted as an attempt to build market share and suggests that Gulf crude is flowing more freely than previously thought, easing supply concerns for now.

Bitcoin Hits a Ceiling

Bitcoin was rejected for a third time from the $87,000 resistance level, failing to sustain upward momentum. The cryptocurrency market did not react to positive regulatory news from Washington, where financial authorities withdrew a long-standing proposal that would have required reporting of crypto transfers to privately-held digital wallets. The lack of a price reaction suggests that fund flows, which were negative on Monday, remain the dominant driver for the market.

US Domestic Policy and Market Shifts

Government Moves to Lower Fuel Costs

In an effort to reduce pressure on consumers ahead of the midterm elections, US President Donald Trump has signed an executive order to allow the wider use of "red diesel." This fuel, normally restricted to agricultural and construction vehicles, will be permitted on public roads and highways, a move the administration claims will substantially cut costs.

A Mismatch in the Housing Market

More homes are becoming available across the US, with the number of properties on the market up 5.6% compared to last year. This provides buyers with more choice. However, a structural challenge remains: over the next decade, an estimated 13.9 million homes are expected to be sold by older homeowners. The issue is that three-quarters of these are larger family homes, while the supply of smaller, starter-sized homes remains extremely limited, creating a difficult environment for first-time buyers.

Politics, Predictions, and Crypto

US politics is seeing new intersections with financial markets. A bill has been introduced in Congress to prohibit candidates for federal office from trading on prediction markets related to their own election outcomes. Separately, crypto's largest political spending network has begun its push into the House midterm races, announcing support for 32 candidates from both major parties in an effort to maintain a pro-crypto coalition in government.

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NOTE: This content is for informational and educational purposes only and does not constitute financial advice. Always do your own research. Not financial advice (NFA).