(Bloomberg) — The stock rally advanced as Nvidia Corp.'s optimistic outlook. artificial intelligence mania reignited and data showed the world's largest economy is still doing well.
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From the U.S. to Europe to Japan, stocks hit all-time highs, with the most valuable chipmaker rising 15% on Thursday and on track to increase its market capitalization by more than $230 billion. That would be the largest single-session gain ever – surpassing Meta Platforms Inc.'s $197 billion gain. With the numbers now available, the bulls are calculating Nvidia's new price-to-earnings ratio, or how much investors are paying for future growth. In other words, the company's profits have grown faster than its shares.
“Nvidia got where it is because of extremely strong earnings and sales,” said James Demmert, chief investment officer at Main Street Research. “When a company has 265% year-over-year revenue growth – like Nvidia – it deserves a top rating.”
The MSCI ACWI index, which includes both developed and emerging market stocks, headed for its highest level ever. The Nasdaq 100 rose nearly 3%, while the S&P 500 posted its biggest gain since November. The $15 billion VanEck Semiconductor ETF (SMH) rose 6.5%. Advanced Micro Devices Inc. and Broadcom Inc. — two other chipmakers expected to benefit from AI growth — rose to record levels. Super Micro Computer Inc., which has become a darling for investors interested in the revolutionary technology, rose 30%.
Stocks were also boosted by solid manufacturing, housing and labor market data, with traders taking the Fed's more hawkish comments in stride. The 10-year Treasury yield rose one basis point to 4.33%.
The story goes on
“Few things are more certain than death, taxes and Nvidia's loss of profits,” said Ryan Detrick of Carson Group. “The bar was set pretty high, and unbelievably, they stepped it up and hit a home run.”
Nvidia's market capitalization has now risen by more than $700 billion this year – its valuation now stands at over $1.9 trillion – as investors bet that the company will be the main beneficiary of an AI computing Booms will remain.
Companies like Amazon.com Inc., Meta Platforms, Microsoft Corp. and Alphabet Inc.'s Google are Nvidia's biggest customers – generating nearly 40% of revenue – as they quickly invest in hardware for AI computing.
“Demand for AI is increasing globally across all companies, industries and countries,” said Tom Hulick of Strategy Asset Managers. “We own NVDA and continue to own the company. This is an exciting momentum game that we have been promoting and participating in for several years.”
Main Street Research's Demmert says investors who already own Nvidia would be advised to hold the stock and avoid selling to capitalize on future expected growth, “since we're still in the early stages of this transformative AI technology.” “.
“For investors who don't own the stock, we would buy on any weakness,” he noted. “Nvidia stock will have corrections and setbacks along the way, but the stock will continue to climb the worry wall.”
According to Solita Marcelli of UBS Global Wealth Management, Nvidia's results are a relief for AI bulls as expectations have improved significantly. Despite the industry's recovery, she sees potential for further gains in technology stocks – particularly those that would benefit from the AI revolution.
“We believe the near-term momentum in AI-related stocks is likely to continue,” Marcelli noted. “To position ourselves, we maintain our preference for semiconductors and software and see opportunities in the beneficiaries of AI edge computing, Big Tech and their partners.”
Nvidia's blockbuster results also highlighted tech dominance over the rest of the stock market, with the “Magnificent Seven” group of megacaps leading the gains.
For Wolfe Research's Chris Senyek, US stocks are poised to gain momentum over the next two to three weeks – with AI-backed names, most Mag 7s and momentum themes driving gains.
In fact, other stock market sectors are not recovering as strongly as the technology sector.
“We still believe that if the stock market moves much more this year than it already has, it will be important for it to move much more than it has already,” said Miller's Matt Maley Tabak + Co “What we are trying to say is that although the technology sector is currently the most important sector for the stock market, there are still numerous opportunities in other sectors in the market.”
The tech rally has pushed the Nasdaq 100's valuation to elevated levels by historical standards, and a similar picture is emerging for the S&P 500. High valuations could ultimately curb further gains as investors weigh how much they are willing to pay for future valuations Stocks to pay growth.
Still, Scott Chronert, a strategist at Citigroup Inc., recently said the index's price-to-earnings numbers could be misleading because 40% of the S&P 500 deviates from other metrics. He predicted more stocks could be repriced even if the U.S. benchmark traded at 20 times expected earnings – and that's exactly what followed.
Meanwhile, demand for options to protect against a near-term drop in the Nasdaq 100 is fading after approaching its highest level in months ahead of Nvidia's earnings report.
The implied volatility premium for one-month puts over calls – known as skew – of the Invesco QQQ Trust Series 1 ETF had risen to about 3.5 points this week, a level last seen for an extended period in November. Concerns centered on the short-term options market, with the difference between one-month and three-month divergence reaching its narrowest level since April 2022 before widening again.
Company highlights:
AT&T Inc. said three-quarters of its wireless network has been restored after a widespread outage affected tens of thousands of its wireless subscribers in the United States.
AbbVie Inc. is selling about $15 billion of bonds in the U.S. investment-grade market on Thursday to help finance its acquisitions of ImmunoGen Inc. and Cerevel Therapeutics Holdings Inc., adding to a recent rush buyout financing.
Space exploration startup Intuitive Machines Inc. will attempt Thursday to put the first intact, U.S.-made lander on the moon in more than 50 years.
Rivian Automotive Inc., an electric vehicle maker, gave disappointing production forecast and announced another round of job cuts.
Moderna Inc. reported fourth-quarter revenue that beat analysts' expectations as it gained market share in Covid vaccines from rival Pfizer Inc.
Newmont Corp., the world's top gold producer, will sell six mines and two projects in a series of divestitures to raise $2 billion in cash.
Grab Holdings Ltd., a ride-hailing company, forecast 2024 revenue below analysts' estimates, pointing to a sharper-than-expected slowdown in its core online business.
Important events this week:
Property prices in China, Friday
Germany IFO business climate, GDP, Friday
The ECB will publish a survey on 1- and 3-year inflation expectations on Friday
Some of the key moves in the markets:
Shares
The S&P 500 rose 1.8% as of 1:13 p.m. New York time
The Nasdaq 100 rose 2.8%
The Dow Jones Industrial Average rose 0.8%
The MSCI World Index rose 1.5%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0818
The British pound was little changed at $1.2649
The Japanese yen fell 0.2% to 150.62 per dollar
Cryptocurrencies
Bitcoin rose 0.4% to $51,611.42
Ether rose 1.7% to $2,978.5
Tie up
The 10-year Treasury yield rose two basis points to 4.34%
The yield on 10-year German government bonds fell by one basis point to 2.44%
The yield on 10-year British government bonds was little changed at 4.11%
raw materials
West Texas Intermediate crude rose 1.1% to $78.77 a barrel
Spot gold fell 0.3% to $2,020.91 an ounce
This story was produced with support from Bloomberg Automation.
– With support from Subrat Patnaik, Carmen Reinicke, Ryan Vlastelica, Carly Wanna, Farah Elbahrawy and Thyagaraju Adinarayan.
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