Global tech stocks experienced a surge on Thursday, fueled by resurgent investor confidence in artificial intelligence, particularly following Nvidia’s stellar earnings report. The chipmaker’s performance has reignited the AI investment narrative after some market jitters related to capital expenditure and valuations.
Nvidia significantly surpassed revenue expectations, reporting a 62% year-over-year jump to $57.01 billion, and issued a robust forecast for the fourth quarter. This performance assuaged investor concerns and reaffirmed the bullish outlook for the AI sector. In premarket trading, Nvidia shares responded positively, climbing 5%.
The positive sentiment extended beyond U.S. shores. In Europe, Dutch semiconductor firms BESI and ASMI saw their shares increase by over 3% and 2% respectively in early trading. ASML, a critical supplier of equipment for semiconductor manufacturing, also experienced a 2.1% uptick.
Asian markets mirrored this trend, with Samsung Electronics and Hon Hai Precision Industry (Foxconn) posting gains of 3.5% and 3.3% respectively.
In the U.S., investors eagerly bought into tech stocks ahead of the market open. AMD rose 5%, Arm gained nearly 4%, Micron Technology advanced 2.7%, Marvell Technology added 3.3%, Broadcom was up 3.1%, and Intel moved 2% higher. This widespread rally indicates a renewed conviction in the underlying growth potential of the technology sector.
‘Phenomenal Growth’ Validates AI Thesis
Dan Hanbury, global equity portfolio manager at Ninety One, acknowledged the positive market reaction to Nvidia’s results. “As a holder, it’s great to see an early positive reaction, but of course, as we know those reactions can reverse,” Hanbury stated on CNBC’s “Squawk Box Europe.” However, he emphasized, “Our reading of the numbers is they are very strong.”
Hanbury highlighted the remarkable growth trajectory of Nvidia’s data center revenue, projecting a consensus forecast of $280 billion for the coming year, a significant leap from $15 billion just three years ago. This underscored the transformative impact of AI on Nvidia’s business and validated the company’s strategic investments in the sector.
Karen McCormick, chief investment officer at Beringea, addressed the evolving landscape of AI investment, particularly Microsoft’s planned investment of up to $15 billion in OpenAI rival Anthropic. “It’s always a little bit intimidating to contradict Jensen Huang right after he has made phenomenal earnings results but in terms of the almost incestuousness of the valley and the AI companies, it is more than we have seen in the past,” McCormick said, referring to the close relationships and interconnected investments within the AI ecosystem.
McCormick raised a point about the nature of the funding mechanisms in the AI space. “I mean, if you think about traditionally, we might have called something like this vendor financing, where your vendor is helping to support the business. In this case we are just doing it with hundreds of billions of dollars and the ecosystem itself is now so intertwined that it’s almost a little bit nerve-wracking because if we are in a bubble and if any of that bubble bursts, what is going to happen to all of the related businesses?” This highlighted a potential vulnerability related to concentrated risk exposure within the AI ecosystem.
Debt and Valuations: Weighing the Risks
Concerns about circular dealmaking, debt issuances, and high valuations have exerted some pressure on the market, even as Big Tech companies released a string with strong quarterly earnings.</ Whether this pressure will significantly impact the progress of the AI sector remains to be seen.
“The flip side to that is that each of them has incredibly robust balance sheets and incredibly robust investors, who may not let them fail either way,” McCormick observed, noting the financial strength and backing of prominent AI players.
Ben Barringer of Quilter Cheviot offered a more tempered perspective on valuations, stating that Nvidia’s valuation is not “particularly excessive.” Looking at the core big tech companies, valuations aren’t that stretched, he added.
In terms of debt that’s also at the peripheral, he added. While Meta and Amazon have raised debt, “they’re still net cash positioned,” Barringer noted, “I think it’s more about them managing their treasury position and managing their balance sheet, as it were. Yes, it’s not great that they are doing some of this capex from debt, but it’s nowhere near as bad as 1999, where these were very heavily levered telecom companies doing a lot of this capex.”
Gil Luria of D.A. Davidson downplayed the idea that Nvidia is a reliable indicator of potential market overvaluation. “Any concerns about Nvidia were certainly laid to rest [with Nvidia’s earnings], but that doesn’t mean that we don’t need to keep an eye on companies lending or borrowing to build data centers,” Luria cautioned, highlighting the importance of monitoring debt levels in the data center infrastructure sector.
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