Checks and Balances

A 'death blow' for Liberation Day?... It could be good news for U.S. stocks... But fewer tariffs mean more debt... Nvidia blew away earnings – again... Last call: The AI breakthrough about to reshuffle the market

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A court has spoken on tariffs...

Late yesterday, the relatively little-known federal court – the Court of International Trade –deemed President Donald Trump's "Liberation Day" tariffs illegal... and ordered them halted within 10 calendar days.

I (Corey McLaughlin) first wrote about this possibility back in our April 15 edition, after several small U.S. businesses filed suit against the Trump administration over tariffs. As I said then:

A wine importer and distributor in New York... a sportfishing-gear business in Pennsylvania... a pipe company in Utah... and a couple other small U.S. businesses filed a lawsuit against President Donald Trump yesterday.

They're seeking to block Trump's new tariffs on foreign imports, alleging they're illegal because Congress doesn't grant a president the power to levy tariffs based on trade deficits with other countries on the basis of a national "emergency."

In Friday's mailbag, we mentioned that the courts had started to debate the legality of these tariffs... and lo and behold, the case is now making headlines, with some creative writers suggesting a "death blow" to Trump's Liberation Day tariffs.

Our Stansberry's Investment Advisory lead editor Whitney Tilson covered the story in his free daily newsletter today...

[T]hree judges of the Court of International Trade – including one appointed by Trump – ruled yesterday that he can't impose tariffs under the International Emergency Economic Powers Act ("IEEPA") of 1977.

When Trump announced the big tariffs last month, he said the U.S. trade deficit had created a national emergency. And the IEEPA gives the president extensive powers to address national emergencies.

However, the three-judge panel said the trade deficit didn't fit the IEEPA's definition of an "unusual and extraordinary threat." And it said that it wouldn't be constitutional for Congress to delegate "unbounded tariff authority" to Trump.

Of course, the Trump administration almost immediately appealed the decision and asked the trade court judges' decision to be paused.

Today, a federal appeals court granted the White House's request on the pause "until further notice while this court considers the motions papers" (which temporarily reinstates the tariffs). But that doesn't change the potential outcome of the issue.

The case – V.O.S. Selections, Inc. (a New York-based wine company) v. United States – could still head to the Supreme Court after the appeals process.

We can't tell you how all this will shake out, but...

It's important to note a few things in the meantime...

First, the trade court ruling applies to all the proposed Liberation Day tariffs (that were based on trade deficit numbers)... the tariffs placed on China, Mexico, and Canada earlier this year for failing to combat fentanyl trafficking and illegal immigration... and the 10% blanket tariff on all goods imported to the U.S.

However, the ruling doesn't affect the 25% tariffs on autos, steel, and aluminum imported to the U.S. or the tariffs put on China during Trump's first term.

There are also other routes the White House can take to reimpose tariffs, like the Trade Acts of 1930 and 1974. So the story is far from over.

However, if the ruling holds, it takes away basically any leverage the White House may have in tariff-related trade negotiations with other nations.

Again, we have no way of knowing how this will end.

But I still believe what I wrote when I first broached the subject of tariff lawsuits in April – that they'll be good for market sentiment and a reason to "stay the course" in U.S. stocks...

[I] am not a lawyer, but I do know these things typically take a while to reach an ultimate conclusion... and this case seems destined for the Supreme Court.

When you pair this suit with what we've heard recently about tariff "flexibility"... exemptions... and expected trade deals with more than 10 foreign partners to be announced in the future, it sure sounds like the tariff war is losing its teeth.

I could be wrong. But all of this could mean more "less bad" news for the market...

Things are already not as "bad" regarding tariffs as they were back in mid-April. Trump has backed down from exceedingly high tariffs on China, and the market seems to expect the same thing to happen with other countries.

But a complete elimination of Liberation Day tariffs might not be as "great" as it might sound on the surface...

When would you like your inflation?...

Given the debt-ballooning nature of the "big, beautiful" tax and spending bill currently sitting in Congress and the Trump administration's thought that tariff revenue would help eat into federal deficits over the next few years... having the bulk of tariffs disappear could make the federal government's fiscal situation even worse than it already is.

We don't know how much revenue tariffs will ultimately bring in. But if that revenue is just a fraction of what it could have been, it will likely lead to more debt, the government issuing more Treasurys, and a higher-interest-rate environment in the longer run.

Tariffs were also the basis for bringing manufacturing investment into the U.S., according to the Trump administration. Without that ability to put blanket import taxes in place, will that kind of investment still happen moving forward?

Meanwhile, it looks like at least some tariffs will remain in place, which means tighter margins for some businesses (like carmakers). We could see that translated into higher prices for goods in the market or companies using cost-cutting measures, like eliminating jobs, to avoid losing money. This could mean higher inflation for the related items in the shorter term.

As usual, the end "consequence" includes inflation. It's just a matter of when it shows up. In the end, we land where we often do: Own shares of high-quality businesses that will make the most of their cash, and consider owning "hard assets" like gold to grow and preserve your wealth in the long run.

In other news, the most important earnings of the quarter...

Coming into this week, 96% of S&P 500 Index companies had released their results for the most recent quarter. But we've been waiting for one of the most important ones – chipmaker and artificial-intelligence ("AI") darling Nvidia (NVDA)...

After the market closed yesterday, the company delivered its latest quarterly results.

In Nvidia's first quarter (which ended April 27), sales surged 69% from the same period a year ago – to $44.1 billion. And net income jumped 26% to $18.8 billion, helping Nvidia beat Wall Street's estimate for earnings.

But what a lot of investors really care about is Nvidia's AI and data-center business. It was good news there too. Data-center revenue soared 73% year over year to $39.1 billion, making up nearly 90% of Nvidia's overall sales.

And the good news continued...

Looking forward, Nvidia forecasts $45 billion in sales for the second quarter, up 50% from the same quarter a year ago.

Now, Nvidia's sales growth has slowed every quarter since peaking at a rate of 265% in early 2024 – as the AI boom really started to take off. If its second-quarter projections hold, it would be Nvidia's slowest sales growth since the first quarter of 2023. But 50% sales growth is incredible for a business with a $3 trillion market cap.

And investors loved the report. Nvidia's shares spiked in pre-market trading and gained 3% today. Nvidia shares are up nearly 50% since a post-Liberation Day low on April 4, and are now only about 6% off their all-time high.

AI investment isn't slowing...

We're five months into 2025 now, and Nvidia and the other Magnificent Seven companies are still expecting to spend big on AI infrastructure. Meta Platforms (META) and Microsoft (MSFT) alone plan to spend nearly $150 billion combined.

California utility giant PG&E (PCG) also recently shared that there's still a huge demand for AI infrastructure – like data centers.

In an interview with Reuters, PG&E executive Mike Medeiros said that the utility company has seen a 40% jump in requests from companies looking to power their data centers, which require huge amounts of energy.

As our Commodity Supercycles team explained in their January issue...

These data centers typically consume between 1 to 5 megawatts ("MW") of electricity each. The biggest ones require as much as 100 MW of power to operate – enough to energize at least 50,000 homes.

Construction of new data centers in the U.S. reached record levels in 2024, with 78 projects starting in just the first six months.

The [Department of Energy] estimates that data centers in the country could nearly triple their share of power consumption by 2028.

With demand for energy surging, someone has to provide that power. And that's where utilities like PG&E come in. Our Commodity Supercycles team has two active recommendations for utility companies, which are both up more than 40% in just about a year.

Why Nvidia and AI are so important...

As we noted earlier this month, AI spending was a huge boost to the economy in the first three months of the year, based on the first-quarter GDP report, while things like front-loading imports to avoid tariffs ate into GDP.

From the May 1 Digest...

As Bespoke Investment Group highlighted in a post on social platform X last night, data-center investment played a huge part in yesterday's GDP report. "Nonresidential fixed investment in IT equipment" added a full percentage point to GDP in the first quarter.

Nvidia's earnings and PG&E's comments on power requests show that there's still room to run in AI investment. And that could provide some support for the U.S. economy, even if tariffs eat into growth.

We'll keep watching Nvidia's growth trajectory because investors look to it for clues on the AI trend (and the broader economic impact of it). And signs of weakness could mean AI spending is slowing.

Meanwhile, Nvidia's shares play a huge part in the mechanics of the stock market. Nvidia has among the largest weightings in both the S&P 500 and Nasdaq 100 indexes, with weightings of 6.2% and 11.6%, respectively.

Since tech stocks like Nvidia make up a huge concentration of the major U.S. stock indexes, they can easily pull markets into a correction if their shares fall – like they did earlier this year. On the other hand, large moves like today's in Nvidia can help pull the indexes higher.

The next chapter in the AI story...

As we've been writing lately, if you think you missed the big gains in AI, there's a strong case that you haven't...

That's why Whitney and Silicon Valley legend Jeff Brown recently sat down together on camera to detail how the "next generation of AI" is on the cusp of breaking out... and why it will completely reshuffle the markets and economy in a way not seen since the dot-com era.

Jeff is the founder of our corporate affiliate Brownstone Research and recommended Nvidia and bitcoin before they soared by thousands of percent.

Today, Jeff and Whitney are sharing the details on the backbone of a new AI economy taking shape – and how you can possibly double your money on five different investments as the next chapter of AI hits the mainstream.

It all has to do with a little-known company that has developed what Whitney and Jeff describe as an AI "super chip" that's 50 times faster than Nvidia's.

Be sure to watch the presentation or read a transcript of it here for the full story, plus a few free recommendations – two stocks to buy, including one that Jeff says is "Nvidia's silent partner," and one stock to avoid.

But don't delay. The catalyst for this story becoming more widely known is coming in a matter of days, and this presentation goes offline at midnight Eastern time tonight. Click here to access it now.

New 52-week highs (as of 5/28/25): Alpha Architect 1-3 Month Box Fund (BOXX), CME Group (CME), GE Vernova (GEV), iShares U.S. Aerospace & Defense Fund (ITA), New Gold (NGD), Sandstorm Gold (SAND), and Sprott (SII).

In today's mailbag, feedback on yesterday's edition, which discussed the "big, beautiful" tax and spending bill sitting in Congress – and Elon Musk's criticism about it... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"On the big-beautiful bill, reality suggests this is the latest manifestation of the 'Inflate or Die' theory regarding current financial events. (Or is it 'inflate AND Die'). I do believe a financial reset is required to revalue real assets after all the debt collapses and we're left to pick up the pieces and start over.

"I'm an 'End the Fed' proponent, but right now I'd settle for 'End Fed Fiscal Involvement', or EFFI. The US Treasury Bond market (debt) is large enough, if you're in a hole stop digging..." – Subscriber Jim S.

"Corey, With due respect, 'Mass e-mailing federal employees asking them to list five things they accomplished in the previous week...' is not a bad thing. The amount of largess in 'civil service' positions is almost legend.

"The rest of us had to deal with deadlines, answering to superiors, and employee reviews. We were asked about what we accomplished on a regular basis, not just once from a guy trying to clean up the excess that's polluting the swamp and gobbling up our tax money.

"I give credit to federal workers who are out in the field doing their best to protect the public, but those in bureaucratic roles complaining about Musk? They're about as useful as farts." – Subscriber John C.

Corey McLaughlin comment: Fair enough, and we appreciate a good, subtle fart reference.

However, let me acknowledge the second half of the sentence that you quote, where we said the e-mail(s) that DOGE sent asking for a list of five accomplishments from the previous week "seemed to be a tipping point for D.C. bureaucrats."

I don't think the concept of asking for accountability from workers is a bad one, especially those who are paid by the government and with other people's tax dollars.

The point we were trying to make is that there were likely better and more effective ways for DOGE to make Uncle Sam more efficient for the good of us all. The DOGE experiment felt like the best chance for it to happen in decades, but the course of the federal government's finances and breadth now looks like the "same old story."

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
May 29, 2025