“While no one has waved an official checkered flag in the Sino-American race for AI supremacy,” Stephen Roach writes in Conflict this morning, “the markets are betting that the United States will prevail.”
Wall Street’s never been shy about picking favorites. And this week, retail investors are betting big — $8 trillion big — that the United States will crush China in the global AI arms race.
That’s the market cap of Nvidia and Microsoft combined.
Nvidia impressed shoe shiners and Uber drivers alike when it became the first $4 trillion company. The GPU manufacturer’s market cap is now about as large as the entirety of the European stock market.
Just behind it: Microsoft, flush from its investment in OpenAI and currently valued at $3.7 trillion. Together the two companies have eaten $7.9 trillion… approaching the entire GDP of Japan and Germany combined.
But before we start popping champagne over Silicon Valley’s global dominance, it’s worth remembering: financial markets are better at celebrating winners than preparing for consequences.
Nvidia Tops the World, Chips in the Game
Nvidia’s moment was a long time coming.
The company quietly underpinned the first wave of crypto mining. Then, its GPUs found a new calling: training the large language models now powering ChatGPT, Grok, Claude, and every chatbot vying to write your midyear performance review.
Now, with the market snapping up every AI-adjacent narrative like it’s 1999, Nvidia’s $4 trillion valuation has eclipsed not just tech peers, but the GDP of Germany.
Huang himself is being treated like a tech-age Alexander, conquering markets rather than empires. This week, the Wall Street Journal described him as “the most important CEO you’ve never heard of, now the most powerful CEO you won’t be able to ignore.”
Microsoft: Beneath the Surface, a Shadow Empire
Don’t sleep on the other giant.
Microsoft has built an AI empire without ever leading with its own name. With OpenAI as its public-facing protégé, Microsoft remains the utility company of the AI era — providing infrastructure, servers, and the money to keep the lights on in every chatbot’s neural cortex.
Its market cap sits just behind Nvidia’s, and unlike the GPU kingmaker, Microsoft holds deep relationships across the U.S. government, from Pentagon contracts to educational platforms.
It’s playing the long game, and it knows how to navigate Washington just as well as Wall Street.
Unprecedented
Nvidia and Microsoft now account for nearly 15% of the S&P 500’s market capitalization, the most concentrated in history.
By comparison, the combined weight of four entire sectors — consumer staples, energy, healthcare, and utilities — is just 19.7%.
Back at the height of the dotcom bubble, those sectors made up 21.6% of the index.
It’s unusual. A distortion. We’ve been concerned about the high concentration of retail capital in all of the Mag 7 stocks since June of 2024. Now that alarming concentration can be summed up in just two: NVDA and MSFT.
Market Valuations Matter
If you buy an asset when it’s overvalued, your returns tend to be lower over the 10-year period, because you’re paying more for each unit of earnings or value.
Which might be why insiders have rarely been this bearish before:
Only 11.1% of companies with insider activity are seeing more buying than selling by corporate officers and directors — the lowest share on record.
Over the last decade, this figure has never fallen below 15%.
Market insiders appear to know the score.
Hedge funds and Wall Street’s Biggest banks were net sellers in almost 90% of companies with recent transactions.
Insiders were either neutral or negative in 10 of the 11 S&P 500 sectors, with utilities being the only sector to show positive sentiment. Selling was also broad-based across company sizes, from small to large-cap stocks.
The divide between retail buying and insider selling remains one of the more alarming hallmarks of this market, despite the fact that NVDA and MSFT are singularly helping the S&P 500 notch consistent new highs.
AI Is Draining the Grid
The AI boom isn’t just pushing up valuations —it’s powering the biggest spike in electricity demand in decades.
Data centers, the beating heart of this revolution, are now the culprit behind a record $16.1 billion bill on America’s largest power grid.
Utilities are scrambling to build new plants to keep up, but with costs threatening to spill over to consumers, even these efforts could trigger political fallout.
In today’s Wall Street Journal: “This marks a new era of electricity planning where data centers are becoming the primary driver of grid expansion,” said Robert Brandon of PJM Interconnection.
Curiously, we’ve been accused by one reader of fear-mongering about the transition to an AI-dominant economy, and the strain it’s placing on natural resources and the electricity grid.
We’re going to address that concern directly on Grey Swan Live! with Shad Marquitz this morning at 11 a.m. EST. Details below.
The New Great Game
The Biden hangover CHIPS Act has already funneled hundreds of billions into domestic manufacturing.
Export controls are tightening. Foreign students in U.S. AI programs are being scrutinized like Cold War physicists.
Meanwhile, Chinese firms, though well-funded, are increasingly isolated — cut off from the most advanced chips and relying on domestic knockoffs.
This bifurcation isn’t just about who wins—it’s about who builds the rules. “The Chinese model for AI is state driven, top down,” our John Robb commented on a Grey Swan Live! in June, “The U.S. model is chaotic, decentralized.”
Right now, investors are betting on chaos.
Don’t Count Beijing Out Just Yet
While retail investors froth over American AI champions, China’s approach is quieter, more coordinated, and state-backed.
Huawei’s chips are improving. Baidu and Alibaba are adapting quickly. And Beijing has a habit of trading short-term constraints for long-term control.
Last month, a Tsinghua University white paper laid out China’s national AI goals through 2035, including a plan for global governance leadership. That’s not a tech roadmap — that’s grand strategy.
Signal in the Noise: Concentration Risk
As we toast Nvidia and Microsoft, it’s worth asking — what happens when two companies comprise nearly 15% of the entire S&P 500’s value? This level of concentration hasn’t been seen since Bell and Standard Oil ruled the indices.
It’s great while the music’s playing. But if either name falters — or AI hits a political or regulatory brick wall — the correction won’t be gentle.
Meanwhile, in the Real Economy…
Walmart’s CFO warned yesterday that automation may lead to “significant job displacement” within the next five years. In unrelated news, Walmart just announced a $3 billion investment in AI-enabled logistics and checkout.
If you’re trying to see around the next corner, this is your signal: AI’s winners are racking up market caps like war medals… but the rest of the economy may have to pick up the bill.
Back to the Future: Tesla’s Retro Diner Opens
Where’s all this heading? Apparently, straight back to the 1950s.
Tesla opened its first retro-futuristic diner and drive-in theater in Hollywood this week. It features 80 Supercharger stalls, rooftop seating, and two massive outdoor movie screens.
The “Tesla Diner” blends Americana nostalgia with EV-era branding — like a time machine powered by lithium.
As AI rewires the grid and billion-dollar valuations float ever higher, Musk is betting on comfort food and chrome to ground the brand.
In a way, it’s poetic: progress comes full circle when yesterday’s dreams become today’s marketing.
~ Addison
P.S.: Grey Swan Live! with Shad Marquitz: Rare Earth, Real Stakes goes live at 11 a.m.
This week, we explore the Sino-American AI Race and what its doing to the critical minerals markets, modular nukes and uranium, and how AI is reshaping the Defense Department’s strategy, including the recent investment of rare earths mining company MP Materials. Join us before the algorithms get wise.
If you’re a paid-up member of the Grey Swan Investment Fraternity, watch your inbox. Details for today’s Grey Swan Live! with Shad Marquitz will arrive shortly before the sesh begins.
Your thoughts? Please send them here: addison@greyswanfraternity.com
How did we get here? Find out in these riveting reads: Demise of the Dollar, Financial Reckoning Day, and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three.
