CEO Jensen Huang’s presentation at CES was very reassuring to the company’s investors. Huang said, “Demand for Nvidia GPUs is skyrocketing,” and added, “It’s skyrocketing because models are increasing by a factor of ten, an order of magnitude every single year.” Huang said Nvidia “is working with robotaxi operators in hopes of having them use the company’s AI chips and Drive AV software stack to power their fleets of autonomous vehicles as soon as 2027.” Level 4 robotaxis that can drive without human intervention in pre-defined areas is Nvidia’s primary self-driving focus. Huang said that “robotics, including self-driving cars, is the company’s second most important growth category after AI.”
Finally, Huang said that its next-generation AI chip, “Vera Rubin is in full production” and scheduled for delivery to customers later this year. The Vera Rubin architecture is a six-chip system that combines a Vera CPU and two Rubin GPUs, which is designed to provide significant improvements in speed and power efficiency. Specifically, the Vera Rubin NVL72 AI GPU promises up to 5 times greater performance and 10 times lower cost query than Nvidia’s existing Blackwell GPUs. In other words, Nvidia’s next-generation GPU will be lowering the cost of utilizing AI, which should help it spread exponentially. It is very odd for a company as big as Nvidia to experience exponential growth, but that is exactly what is happening.
A reason the Fed needs to cut key is that the Institute of Supply Management () announced that its manufacturing index declined to 47.9 in December, down from 48.2 in November. This is the 10th consecutive month that the ISM manufacturing index has been below 50, which signals a contraction. Despite some green shoots, ISM reported that only 2 of the 17 industries surveyed reported expanding in December, which were Electrical Equipment, Appliances & Components, as well as Computer & Electronic Products. Clearly, data center demand is helping boost orders for these two industries.
If deflation appears due to (1) weak housing/rental prices, (2) low prices, and (3) the deflation that we are importing from China and other weak economies around the world, the Fed is going to have to slash key interest rates 100 basis points pretty darn quick. President Trump is expected to nominate a new Fed Chairman soon, so existing Fed Chairman Jerome Powell is expected to become a lame duck. The Fed, in its December Federal Open Market Committee () minutes, signaled at least one more key interest rate cut of 0.25% was likely, but any deflation news will likely cause the Fed to slash key interest rates a lot more in the upcoming months.
President Trump is anticipated to nominate a new Fed Chairman in January who will end the Fed’s restrictive policy and be much more pro-business. If Kevin Hassett, currently the head of the Council of Economic Advisors, becomes the next Fed Chairman, we will have an economic cheerleader leading the Fed, which will be very exciting.
I like to associate myself with happy, competent people rather than perpetual worrywarts. If Kevin Hassett (Council of Economic Advisors) and Scott Bessent (Treasury Secretary) are happy, we should be happy and invest confidently. Last year was like 1998 and my best performing year in 25 years. I am expecting 2026 to be like 1999, which was my best-performing year ever when my small-to-mid capitalization portfolio surged over 100%.
In summary, get ready for 5% growth as the U.S. economy explodes to the upside. The stock market is now characterized by the strongest sales growth in three years, and earnings are growing at the fastest pace in four years. Furthermore, earnings surprises in the previous quarter were running at the fastest pace in four years, which is why the analyst community has been revising its consensus earnings estimates steadily higher. Finally, the Fed will be cutting key interest rates further, and if deflation materializes, the Fed will likely pick up the pace of its key interest rate cuts.