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A bumper earnings report from Nvidia sparked a global stock market rally on Thursday, boosting technology stocks and pushing indices in the US, Europe and Japan to all-time highs.
The chipmaker’s shares surged by 15 per cent on Thursday after its quarterly results and new forecasts published on Wednesday evening blew past analyst expectations.
The latest jump added almost $260bn to Nvidia’s market capitalisation, and brought its gains for the year to date to more than $700bn. The move means Nvidia has leapfrogged Amazon and Google parent Alphabet to become the third most valuable US-listed company after Microsoft and Apple.
Nvidia has grown so large and has such a high weighting in the S&P 500 that such a significant jump automatically lifts the entire market — Thursday’s increase directly added 0.6 per cent to the index.
More importantly for the broader market, it also helped reinvigorate investor enthusiasm about the potential of artificial intelligence, with Nvidia chief Jensen Huang declaring that “demand is surging worldwide” as generative AI hit “the tipping point”.
A previous blowout report by Nvidia last May had been a key factor in kick-starting investor enthusiasm about AI. Vishal Vivek, a strategist on Citi’s equity trading desk, said that by the end of last year “there were some worries about [that] enthusiasm petering out. What this shows is the AI theme is alive and kicking . . . that’s what the market will take as a key takeaway.”
The S&P 500 rose 1.6 per cent, surpassing the record high set last week as other big tech groups including Microsoft, Amazon and AMD also made gains.
Meanwhile the Stoxx Europe 600 and Japan’s Nikkei 225 hit record highs, with tech stocks again the largest drivers of Thursday’s gains.
Nvidia’s market impact — it has been directly responsible for more than a quarter of the S&P’s year-to-date growth — has become so great that some investors and analysts were anticipating Wednesday’s financial report as a marketwide risk similar to the release of inflation data.
Analysis by Citi earlier showed that traders in options markets were treating Thursday’s trading session as the joint largest “risk event” before next month’s Federal Reserve policy meeting.
Charlie McElligott, Nomura managing director of cross-asset strategy, said Nvidia’s “halo effect has almost single-handedly held up” the US stock market in recent months.
The results overshadowed Wednesday’s release of the minutes from the Federal Reserve’s latest meeting, which reaffirmed that officials had been cautious in January about cutting rates too quickly.
The narrow leadership of the recent market rally has sparked concerns in some quarters about excessive exuberance, particularly considering economic growth is expected to slow in the year ahead and inflation in the US has been showing signs of rebounding.
Nvidia’s revenue forecasts have risen so rapidly that its valuation is not at historically high levels when looked at on a price to forward earnings ratio, but a string of investors and analysts have cautioned that some stocks and indices are approaching “bubble” territory.
Two investors highlighted the rally in Super Micro Computer, a Nasdaq-listed maker of server equipment whose share price has risen 225 per cent so far this year on the back of AI enthusiasm.
The company announced a $1.5bn convertible bond deal on Wednesday afternoon, offering an interest rate of between 0 per cent and 0.5 per cent.
Ted Mortonson, a tech strategist at Baird, said: “There is a dislocation between valuations versus fundamentals [in some areas]. That happened in 2000. The market might as well be renamed from Nasdaq to DraftKings — it’s a trading casino.”
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