AI booms, politics burst

Forget about the US government shutdown, the French political chaos, or the new Japanese PM whom many are comparing to Margaret Thatcher and Shinzo Abe. One big piece of news from OpenAI yesterday overtook all headlines and dominated market action: the company signed a blockbuster deal with AMD — yes, Nvidia’s rival in the AI chip business — to deploy 6 gigawatts’ worth of AMD graphics processing units over multiple years.

That’s just over half the size of the agreement OpenAI announced with Nvidia a few days ago, and according to AMD’s CEO, Lisa Su, it could generate around $100 billion in revenue over the next four years. So yes — bingo — AMD shares spiked more than 30% at the open and closed up by 23% on the news, while Nvidia lost just 1.1%, far less than it might have if the announcements had come in reverse order. Nvidia recently pledged to invest up to $100 billion in OpenAI — money that would partly be used to buy Nvidia chips. Now, OpenAI announces a blockbuster deal with AMD and takes an option for roughly a 10% stake in AMD through warrants tied to the deployment plan. For those worried about the circular nature of this business growth, things are indeed getting more circular by the day. But this also suggests that Nvidia wouldn’t pour $100 billion into a company planning to replace its chips with a rival’s — meaning OpenAI is far more concerned about meeting exploding AI demand than about supplier loyalty. Note that OpenAI also struck deals with South Korean chipmakers last week, sending their shares soaring.

Clearly, OpenAI believes the AI pie will be big enough to feed everyone. For AI and tech investors, that’s optimism-boosting news — a signal countering fears that AI revenues might fall short of the massive investments currently being made. As a result, the S&P 500 consolidated near an all-time high yesterday, while the tech-heavy Nasdaq pushed to a fresh record.

Elsewhere, the news was far less cheerful. The US government remains shut, but the dollar index is still well bid — not because the outlook is great, but because the other majors look even worse.

In France, political chaos is worsening by the hour. The new Prime Minister, Sébastien Lecornu, resigned after just 14 hours in office, as the cabinet announced by Macron was largely unchanged from the one that just fell — immediately triggering talk of a no-confidence vote. Lecornu has since accepted Macron’s call to hold on for another 48 hours, but there’s little light at the end of the French political tunnel. France, as it stands, is barely governable. The yield spread between French and German 10-year bonds spiked past 85 basis points and could well widen toward 100 bp, limiting any upside potential for the euro. The EURUSD is trading below 1.17 this morning and will likely remain under pressure from French political shenanigans for a while.

In Japan, the yen remains weak under the new LDP appointee, Sanae Takaichi, who favours loose monetary and fiscal policies and is being compared to both Thatcher and Abe. The Nikkei is consolidating after a 5% rally, while JGB yields hover at multi-decade highs. Investors are wondering whether Japan’s new PM, Takaichi, can recreate the optimism of Abe’s Abenomics era with her pro-growth agenda. But unlike Abe, she faces rising inflation, record-high debt near 216% of GDP, and a central bank that’s tightening, not easing. That leaves far less room for bold fiscal or monetary moves. So while Japanese equities may climb further if global sentiment stays buoyant, a true Abenomics-style rally looks unlikely — and rising yields could even trigger repatriation flows that ripple through global markets.

In the UK, meanwhile, the upcoming budget has investors so uneasy that sterling doesn’t even look like a safe bet.

Capital continues to flow into traditional safe havens — gold, silver, and even Bitcoin. A further weakness in the US dollar — which remains the base case scenario as long as the government stays shut — should directly support these assets.