On Wednesday, May 20, Eastern Time, all three major U.S. stock indexes rallied sharply. As international oil prices fell, Treasury yields cooled, and the market renewed its bet on strong AI demand ahead of Nvidia’s earnings report, investor risk appetite clearly rebounded. At the close, the S&P 500 rose 1.08%, the Nasdaq surged 1.5%, and the Dow Jones gained 1.3%. The day before, the bond market had experienced a sell-off amid concerns that persistent inflation might force the Federal Reserve to reconsider its rate hike path. The Fed meeting minutes released on Wednesday further reinforced those worries.

Nvidia Reports Strong Earnings

Just as the market began to worry whether the AI rally had gone too far, Nvidia’s latest earnings report gave Wall Street a fresh boost. The company reported first-quarter revenue of $81.6 billion, up 85% year-over-year, significantly beating market expectations. Adjusted earnings per share came in at $1.87, also above estimates. More critically, the company’s revenue guidance for the next quarter reached $91 billion, far exceeding analysts’ expectations of $87.2 billion. Data center revenue surged 92% year-over-year to $75.2 billion, continuing to show that global AI infrastructure construction remains in a rapid expansion phase.

In the earnings report, Nvidia’s CEO emphasized that AI infrastructure construction is expanding at an unprecedented pace and noted that agentic AI has begun to generate real commercial value. The company also announced a new $80 billion stock buyback plan and increased its quarterly dividend from 1 cent to 25 cents per share. These moves not only strengthened market confidence in Nvidia’s cash flow and profitability but also further cemented its status as a core beneficiary of AI.

Following the earnings report, a well-known tech analyst at Wedbush stated that Nvidia still stands at the pinnacle of the AI revolution. As global AI infrastructure construction accelerates, the market still underestimates the scale of AI demand in the coming years. He predicted that global large tech companies’ AI capital expenditures could exceed $750 billion in 2026, and over the next 12 to 18 months, AI deployment by enterprises, governments, and global markets will continue to accelerate. The analyst even believes that for every dollar invested in Nvidia, the entire tech industry chain could see a multiplier effect of $8 to $10, and expects tech stocks to have 10% to 12% upside by year-end.

Market Enters a New Tug-of-War

However, the market is now trading not just on AI growth but also on macro risks. The latest Fed meeting minutes showed that more officials are growing concerned that if the conflict in the Middle East continues to drive up energy prices and keeps inflation above 2% for an extended period, the Fed may need to raise rates again in the future rather than cut them. Although rates remain unchanged, the Fed saw the most dissenting votes since 1992, with four officials opposing the current stance, and some even objected to retaining language about the possibility of future rate cuts.

Meanwhile, the situation in the Middle East remains highly uncertain. On Wednesday, former President Trump signaled a de-escalation. According to reports, Trump said on the 20th that if the U.S. and Iran could reach an agreement, he would be willing to wait a few more days for Iran’s response. International oil prices then fell sharply, with WTI crude briefly dropping below $100. The market began to bet that if normal traffic through the Strait of Hormuz resumed, energy supply pressures could ease and inflation risks might decline. But the market remains cautious about a true ceasefire, as Trump has made similar optimistic statements multiple times in recent weeks, only for tensions to escalate again. Currently, Iran continues to block the Strait of Hormuz, while the U.S. maintains a blockade on Iranian ports, with both sides effectively at a standoff.

What Wall Street truly fears is the chain reaction from prolonged high oil prices. Citigroup warned that the market underestimates the risk of a long-term disruption in the Strait of Hormuz, and if the situation persists, Brent crude could rise to $120. Consulting firm Wood Mackenzie even suggested that in an extreme scenario, if the strait remains closed until year-end, oil prices could approach $200. This is why the Fed is once again concerned about inflation—because rising energy prices are not just a short-term shock; core inflation is also rebounding simultaneously.

This macroeconomic environment is also beginning to affect sentiment in chip stocks. After the recent pullback in

S&P 500

The S&P 500 is a stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States, serving as a key benchmark for the overall health of the U.S. economy. It was introduced in 1957 by Standard & Poor’s, evolving from a smaller index that began tracking stocks in 1923. The index is market-capitalization-weighted, meaning companies with higher market values have a greater impact on its movements.

Nasdaq

Nasdaq is a global electronic marketplace for buying and selling securities, founded in 1971 as the world’s first electronic stock exchange. It began as a computerized quotation system to increase transparency and efficiency, in contrast to traditional floor-based trading. Today, Nasdaq is known for listing many of the world’s leading technology and growth companies, including Apple, Microsoft, and Amazon.

Dow Jones

Dow Jones is a prominent financial index that tracks the performance of 30 major publicly-owned companies in the United States, serving as a key indicator of the stock market’s health. It was created in 1896 by Charles Dow and Edward Jones, co-founders of the Wall Street Journal, originally consisting of just 12 companies. Over the years, the index has evolved to reflect changes in the U.S. economy, with its name becoming synonymous with stock market activity and financial news.

Strait of Hormuz

The Strait of Hormuz is a narrow, strategically vital waterway connecting the Persian Gulf to the Gulf of Oman and the open ocean. Historically, it has been a key maritime route for global oil shipments, with around 20% of the world’s petroleum passing through it, making it a focal point for geopolitical tensions, particularly between Iran and Gulf Arab states. Its significance has been recognized for centuries, serving as a critical chokepoint for trade and military strategy since ancient times.

Middle East

The Middle East is a historically and culturally significant region spanning Western Asia and parts of North Africa, often considered the cradle of civilization. It was home to ancient empires like Mesopotamia, Persia, and Egypt, and later became the birthplace of major religions including Judaism, Christianity, and Islam. Today, the region is known for its rich cultural heritage, diverse societies, and ongoing geopolitical importance.