Nvidia Corp. President and CEO Jen-Hsun Huang speaks during the corporate event at Mobile World Congress Americas in Los Angeles, California, the United States, on Monday, October 21, 2019.
Patrick T Fallon | Bloomberg | Getty Images
forget it debt ceiling. Tech investors are in buy mode.
The Nasdaq The Composite finished Friday for its fifth consecutive weekly gain, up 2.5% over the past five days. It’s now up 24% for the year, far outperforming the other major US indices. The S&P 500 is up 9.5% for the year and the Dow Jones Industrial Average is down slightly.
Excitement about chip manufacturers Nvidia’s blow out result report and its leadership in artificial intelligence technology fueled this week’s rally, but investors also bought shares of Microsoft, Meta And alphabeteach with their own AI story to tell.
And with Optimism is brewing that lawmakers are close to an agreement to raise the debt ceiling; and that the Federal Reserve may slow down This year’s stock market is starting to improve due to the pace of rate hikes less than 2022 and more like the tech-loving decade before.
“The focus on these mega-cap tech stocks has been the defining factor in this market,” Victoria Greene, G Squared Private Wealth’s chief investment officer, said in an interview on Centre County Report’s Worldwide Exchange Friday morning. “You can’t deny the potential of AI, you can’t deny the earning power of these companies.”
At the beginning of the year, the main topic was technology redundancies and cost reductions. Many of the industry’s largest companies including Meta, Alphabet, Amazon and Microsoft shed thousands of jobs after a dismal 2022 in terms of revenue growth and share prices. In the results reports, they emphasized efficiency and their ability to do so “Achieve more with less” a theme that resonates with the Wall Street crowd.
But investors have now shifted their focus to AI as companies unveil real-world applications of the long-hyped technology. OpenAI exploded after the release of chatbot ChatGPT last year, and so does its biggest investor, Microsoft Embedding the core technology in as many products as possible.
Meanwhile, Google advertises its competing AI model every chanceand Meta CEO Mark Zuckerberg would much rather Tell the shareholders about his company’s AI advances than the company’s money bleeding Metaverse Efforts.
Best known for its graphics processing units (GPUs) that support demanding video games, the chipmaker is riding the AI wave. The stock up 25% this week hit a record high, taking the company’s market cap to nearly $1 trillion after first-quarter earnings beat estimates.
Nvidia shares are now up 167% this year, topping any company in the S&P 500. The next three top performers in the index are also technology companies: Meta, modern micro devices And Foreclosure.
The History for Nvidia based on what’s to come as its revenue fell 13% year over year in its most recent quarter, driven by a 38% decline in its gaming division. But the company’s revenue guidance for the current quarter came in about 50% ahead of Wall Street estimates, and CEO Jensen Huang said Nvidia is noticing “a skyrocketing demand” for its data center products.
According to Nvidia, cloud providers and internet companies are buying up GPU chips and using the processors to train and deploy generative AI applications like ChatGPT.
“At this point in the cycle, I think it’s really important not to fight consensus,” Brent Bracelin, an analyst at Piper Sandler who covers cloud and software companies, said in an interview on Friday on Centre County Report’s Squawk on the street”.
“The consensus is that with AI, the big ones are getting bigger,” Bracelin said. “And I think that’s going to continue to be the best way to capitalize on AI trends.”
Microsoft, which recommends buying Bracelin, is up 4.6% this week and is now up 39% for the year. Meta is up 6.7% this week and has more than doubled in 2023 after losing nearly two-thirds of its value over the past year. Alphabet is up 1.5% this week, bringing its annual gain to 41%.
One of the biggest drags on tech stocks over the past year has been the central bank’s steady rate hikes. The hikes continued into 2023, with the Fed Funds target range Increase to 5%-5.25% Early May. But at the last Fed meeting, some members indicated that they expected economic growth to slow to remove the need for further tightening, according to minutes released on Wednesday.
Less aggressive monetary policy is viewed as a positive sign for technology and other riskier assets, which typically outperform in a more stable interest rate environment.
Still, some investors fear the tech rally has gone too far given lingering vulnerabilities in the economy and government. Divided Congress makes agreement on debt ceiling difficult as Treasury Department deadline of June 1 approaches. Republican negotiator Garret Graves of Louisiana told reporters Friday afternoon at the Capitol, “We continue to have major problems that we have not found a solution to.”
Treasury Secretary Janet Yellen said later on Friday that the US is likely to have enough reserves to avert a possible default by June 5th.
Alli McCartney, chief executive of UBS Private Wealth Management, told Centre County Report’s Squawk on the Street on Friday that after the recent rebound in tech stocks, it’s “probably time to take some of that off the table.” She said her group have spent a lot of time looking at the venture market and deals and they have noticed significant foaming.
“Either you’re an AI now or you’re not,” McCartney said. “We really have to be willing to see if we don’t hit a perfect debt ceiling, if we don’t get a perfect landing, what does that mean, because at levels like that, we definitely calculate on the US hitting the debt ceiling.” I have one on everything high note and given the risks out there, that seems like a terribly precarious place.
REGARD: Centre County Report’s full interview with UBS’s Alli McCartney