AI Trade Resilient Despite Recent Dip

AI Stocks Rebound as Investors Bet on Growth, Government Shutdown Nears Potential End

U.S. equities saw a resurgence of interest in the artificial intelligence sector on Monday, fueling gains for key players. Nvidia shares surged by 5.8%, building on its dominant position in the AI chip market. Broadcom, a diversified tech giant with growing AI-related revenue streams from custom silicon, climbed 2.6%. Even Microsoft, a significant investor in OpenAI and a leader in cloud-based AI services, rebounded from an eight-day losing streak – its longest since 2011 – with a 1.9% increase.

The renewed interest in AI stocks comes as investors seemingly shrugged off concerns about potentially stretched valuations, focusing instead on the long-term growth prospects of the sector. The current market enthusiasm suggests a shift in sentiment, prioritizing future earnings potential over near-term profitability.

Adding to the cautiously optimistic mood, market participants are also hoping for the resolution of another extended streak: the U.S. government shutdown. The Senate has approved a deal to reopen the government, though it still requires passage in the House and presidential approval. Should this happen, it would remove a significant layer of uncertainty that has been weighing on market sentiment.

However, the recent rally doesn’t entirely extinguish concerns surrounding AI valuations. The sector’s rapid growth has led to some companies trading at significant premiums, raising questions about sustainability. Investors will be closely watching upcoming earnings reports and guidance to assess whether these valuations are justified.

One such report came from CoreWeave, a specialized cloud provider that rents Nvidia GPUs to AI-focused firms like Google and Microsoft. The company’s latest earnings showcased revenue growth of 134% year-over-year, highlighting the strong demand for AI compute resources. However, CoreWeave also reported a net loss and provided lower-than-expected guidance for the remainder of the year. This mixed performance underscores the capital-intensive nature of the AI infrastructure business and the challenges of achieving profitability in the face of rapid expansion.

The pattern of high revenue paired with significant losses echoes the financial profile of OpenAI, the trailblazing AI startup whose innovations ignited the current wave of AI investment. While direct comparisons between CoreWeave and OpenAI might be an oversimplification, both companies illustrate the costly but potentially transformative nature of the AI revolution.

Looking ahead, market strategists remain largely bullish on AI. Mark Haefele, CIO of UBS’s global wealth management, believes “AI-related stocks should drive equity markets.” The potential lifting of the government shutdown adds further tailwinds to the market, removing one more obstacle from the path of economic growth.

Russia is late to the party, but it’s still preparing to enter the rare earths fray

Russian President Vladimir Putin last week ordered his officials to complete a road map by Dec.1 “for the long-term development of the extraction and production of rare and rare earth metals.”

Moscow has fallen behind peers like China when it comes to the exploitation of its deposits of rare earth elements. While lagging behind the big players, Russia is still estimated to possess the fifth largest known reserves of rare earths, totaling 3.8 million tonnes, the United States Geological Survey stated. That’s above the U.S. which is seen with 1.9 million tonnes.

— Holly Ellyatt