Nvidia has breathed new life into the stock market’s sluggish AI trading, at least for a few hours.
The tech sector rallied early Thursday as investors took the company’s blockbuster third-quarter earnings and renewed faith in the artificial intelligence boom. The chipmaker’s stock soared 5%, boosting other technology and AI names.
This situation quickly reversed as concerns about the AI bubble came back to the fore. The Dow rose to 700 points but was down less than 1% by midday Thursday. The S&P 500 and Nasdaq rose more than 1% in the morning, but fell into the red.
Nvidia, the world’s most expensive company by market capitalization, similarly fell into the red after rising as much as 5%.
Here are some of the biggest movements in the technology space.
Here are the U.S. indexes as of 1 p.m. Thursday:
A strong September jobs report briefly fueled gains on Thursday, but enthusiasm subsided as investors grappled with the view that the Fed remains unlikely to cut interest rates next month. The unemployment rate rose to 4.4% in September, but the probability of a 25 basis point rate cut in December was still below 50% as of midday, according to the CME FedEx tool.
The CME FedWatch tool showed the probability of a rate cut rose slightly after the data was released. The report from two months ago will be the last labor statistics before the next FOMC meeting.
Confidence in AI-driven stock gains has been waning in recent weeks, with investors worried about high valuations and a surge in capital spending on AI spending.
But Nvidia, considered a bellwether in the AI trade, has allayed many of the concerns about whether demand for AI chips will continue. The company, led by Jensen Huang, reported sales of $57 billion in the quarter, up 62% from a year earlier. Revenue from the data center business totaled $51.2 billion, an increase of 66% year over year.
The company expects sales of $65 billion for the current quarter, beating analysts’ guidance of $61 billion.
“It’s been decades since a single stock could move the market like Nvidia,” David Rosenberg, a top economist and president of Rosenberg Research, said in a note to clients Thursday. “The company certainly met its sales, bottom line, and forward guidance after yesterday’s bell. This result shattered the growth slump of the past few weeks.”
Wedbush Securities analyst Dan Ives said Hwang’s comments to investors last night were exactly what tech bulls “needed to hear.”
“Simply put, there is one company in the world that will be the foundation of the AI revolution: Nvidia, with the godfather of AI, Mr. Jensen, and the perfect perch and advantage to discuss the entire enterprise AI demand,” Ives and other analysts wrote in a note.
Despite renewed optimism, some believe that concerns about an AI bubble are still valid.
“This is still a bubble of epic proportions, so let’s keep that in mind,” said Rosenberg, who has repeatedly warned about price bubbles in risk assets. “I’m skeptical that the total size of the AI market will grow eightfold over the next five years, but that’s what’s currently priced in.”
