Jen-Hsun Huang, President and CEO of Nvidia Corp., speaks during the company’s event at the Mobile World Congress Americas in Los Angeles, California, U.S., Monday, Oct. 21, 2019.
Patrick T Fallon | Bloomberg | Getty’s paintings
Ignore the debt ceiling. Tech investors are in buy mode.
The Nasdaq The Composite closed its fifth consecutive weekly gain on Friday, jumping 2.5% over the past five days, and is now up 24% this yr, well ahead of other major US indexes. The S&P 500 is up 9.5% over the yr, and the Dow Jones Industrial Average is down barely.
Excitement around the chip maker Nvidia earnings report and leadership in AI tech fueled rally this week, but investors also bought stocks Microsoft, goal AND Alphabeteach with their very own AI story to inform.
And with growing optimism that lawmakers are near an agreement to boost the debt ceiling and that the Federal Reserve could also be slowing the pace of interest rate hikes, this yr’s stock market is beginning to look less like 2022 and more prefer it’s content with the technology of the many years that preceded it.
“The deal with these tech capital stocks was where it needed to be on this market,” Victoria Greene, chief investment officer at G Squared Private Wealth, told CNBC’s Worldwide Exchange on Friday morning. “You possibly can’t deny the potential of AI, you’ll be able to’t deny the earning capability of these corporations.”
At the starting of the yr, the essential topic in technology was layoffs and price cuts. Many of the biggest corporations in the industry, including Meta, Alphabet, Amazon and Microsoft were cutting 1000’s of jobs after a disastrous 2022 in terms of revenue growth and share prices. In earnings reports, they emphasized efficiency and the ability to “do more with less,” a theme that resonated with the Wall Street crowd.
But investors have shifted their focus to AI now as corporations showcase real-life applications of the long-rumored technology. OpenAI exploded after the release of the ChatGPT chatbot last yr, with its biggest investor, Microsoft, embedding the underlying technology into as many products as possible.
Meanwhile, Google touts its competing AI model at every opportunity, and Meta CEO Mark Zuckerberg would reasonably tell shareholders about his company’s AI advances than the company’s money-wasting efforts in the Metaverse.
Go to Nvidia.
The chip maker, best known for its graphics processing units (GPUs) that power advanced video games, is riding the wave of artificial intelligence. Shares surged 25% this week to a record high and pushed the company’s market capitalization to almost $1 trillion after first-quarter earnings exceeded estimates.
Nvidia’s stock is up 167% this yr, rating first amongst all corporations in the S&P 500. The subsequent top three in the index are also tech corporations: Meta, Advanced Micro Devices AND Sales force.
Nvidia’s story is predicated on what’s to return, as its last quarter revenue fell 13% from a yr earlier attributable to a 38% drop in its gaming division. But the company’s sales forecast for the current quarter was about 50% higher than Wall Street estimates, with CEO Jensen Huang saying Nvidia sees “increasing demand” for its data center products.
Nvidia said cloud providers and web corporations are buying GPUs and using the CPUs to coach and deploy generative AI applications like ChatGPT.
“I feel at this point in the cycle it’s really necessary to not fight consensus,” Brent Bracelin, an analyst at Piper Sandler who covers cloud and software corporations, told CNBC’s “Squawk on the Street” on Friday.
“The consensus is that with AI, the big gets larger,” Bracelin said. “I feel it should proceed to be the best strategy to capitalize on AI trends.”
Microsoft, which Bracelin recommends buying, is up 4.6% this week and is now up 39% year-on-year. Meta gained 6.7% in per week and greater than doubled in 2023 after losing nearly two-thirds of its value last yr. Alphabet is up 1.5% this week, taking the year-over-year increase to 41%.
One of the biggest hurdles for tech stocks last yr was the consistent rate hikes by the central bank. The increases continued into 2023, with the goal range for federal funds increasing to 5-5.25% in early May. Nevertheless, at the most up-to-date Fed meeting, some members indicated they expected a slowdown in economic growth that will remove the need for further monetary policy tightening, in keeping with the minutes released on Wednesday.
A less aggressive monetary policy is seen as an optimistic sign for tech assets and other riskier assets, which are likely to outperform in a more stable interest rate environment.
Still, some investors fear the tech rally has gone too far given the weaknesses of the economy and government. A divided Congress makes it difficult to agree on a debt limit as the Treasury Department’s June 1 deadline approaches. Republican negotiator Representative Garret Graves of Louisiana told reporters on Capitol Hill Friday afternoon that “we still have serious problems that now we have not been capable of overcome.”
Treasury Secretary Janet Yellen later said on Friday that the US would likely have enough reserves to ward off a possible debt default until June 5.
Alli McCartney, managing director at UBS Private Wealth Management, told CNBC’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 had spent loads of time taking a look at the high-risk market and where the trades were happening, and so they noticed a transparent foam.
“Either you are an AI or you are not without delay,” McCartney said. “We actually must be able to see if we do not hit the perfect debt ceiling if we do not get the perfect landing, which is what meaning because at these kinds of levels we’re definitely pricing in hitting the US high on every thing and it looks like a really precarious place to be.” where you’ll be able to take risks. “
TO WATCH: Full CNBC interview with UBS’s Alli McCartney