By Alex Eule | Thursday, May 15

Higher Tariffs, Higher Prices. A solid helping of moderately important economic news did little to shift the generally bullish sentiment on Wall Street. Wholesale prices, tracked by the producer price index, fell unexpectedly in April, while retail sales came in slightly below estimates. Stocks were all down at the open, but the large-cap S&P 500 rallied back for a 0.4% gain. 

All in all, it was a slightly risk-off day with defensive stocks outperforming growth assets like tech. That helped the value-focused Dow Jones Industrial Average rise 272 points, while the tech-heavy Nasdaq Composite fell 0.2%, snapping a six-session winning streak. 

The most meaningful economic point of the day may have come from Walmart. The country's largest retailer reported strong earnings for its first quarter and said its outlook for the year remained intact. But the company said tariff policies were likely to force price hikes at stores: 

"We're positioned to manage the cost pressure from tariffs as well or better than anyone," Walmart CEO Doug McMillon told investors this morning. "But even at the reduced levels, the higher tariffs will result in higher prices."

Maintaining its guidance estimates for the year, "involve the belief that trade policy discussions will result in bilateral agreements," Chief Financial Officer John David Rainey said. "However, if we see a restoration of dramatically higher tariff levels, the impact on our financials could be significant and even jeopardize our ability to grow earnings year-over-year."

Around the same time Walmart executives were speaking, Federal Reserve Chairman Jerome Powell told attendees at a Washington, D.C. conference that inflation could become more erratic in the coming years. “We may be entering a period of more frequent, and potentially more persistent, supply shocks—a difficult challenge for the economy and for central banks,” Powell said. 

Barron's Sabrina Escobar has more on Walmart's report, while Nicole Goodkind covered Powell's speech. 

The warnings from Walmart and Powell come as investors have largely moved on from tariff fears, with the S&P 500 back in positive territory on the year. But the retailer and Fed chair each know a few things about the economy. Investors tune them out at their own risk.

DJIA: +0.65% to 42,322.75
S&P 500: +0.41% to 5,916.93
Nasdaq: -0.18% to 19,112.32

The Hot Stock: Steris +8.5%
The Biggest Loser: Fiserv -16.2%

Best Sector: Utilities +2.1%
Worst Sector: Consumer Discretionary -0.2%

'Sovereign AI' Explained

 With tech earnings moving into the rearview mirror, the main tech news of the week came from Saudi Arabia, my colleague Adam Levine reports. In his recent story, Adam dives into the growing trend of Sovereign AI or, as he puts it, "the need for domestic AI data centers under the national government’s control."

These efforts to nationalize AI is a growing growth opportunity for Nvidia, Advanced Micro Devices, and other makers of AI chips -- on the order of $50 billion a year, according to one analyst.

Nvidia CEO Jensen Huang has been talking up the opportunity for the last 18 months, Adam writes: 

Nvidia, for its part, has been pointing to sovereign AI as a growth driver since its November 2023 earnings call.

“National investment in compute capacity is a new economic imperative,” CEO Jensen Huang said on that call, about a year after ChatGPT launched the current AI boom. “People realize that they can’t afford to export their country’s knowledge, their country’s culture, for somebody else to then resell AI back to them.”

Back then, the first sovereign AI that Huang mentioned was in India, a multicultural tapestry where 22 official languages are joined by another hundred still in use. It’s in India’s self-interest that AI language models from other countries don’t wipe out its millennia of rich cultural history and to ensure its nascent tech scene has access to the latest technology. Thus the need for domestic AI data centers under the national government’s control, or sovereign AI.

Read more on tech's next big trend here.