The AI Trade Faces Its First Major Test With Nvidia Earnings
ChatGPT creator OpenAI in January. Google parent Alphabet unveiled a rival chatbot the next month. Companies hoping to develop their own artificial intelligence programs need to buy Nvidia’s chips, known as graphics processing units, to build them.
Nvidia’s blockbuster sales outlook kicked the enthusiasm into overdrive. Analysts polled by FactSet now expect Nvidia to earn $2.08 a share in the recently completed quarter, nearly double the consensus forecast in April. “More than 40,000 companies are already running on Nvidia to speed up, scale up and unlock previously impossible-to-solve problems," Nvidia CEO Jensen Huang said at the company’s annual meeting in June.
The Nasdaq Composite rallied 15% from May 25 through the end of July. The S&P 500 advanced 12%. Now, the markets once again could use another dose of AI magic.
A string of strong economic data has Federal Reserve officials worried about a resurgence of inflation, according to minutes from the July policy meeting released last week. That raises the possibility of further interest-rate increases. Surging yields for long-term bonds have reduced the attractiveness of holding stocks to bonds.
The Chinese economy, the world’s second-largest and a source of growth for many large U.S.-listed stocks, is showing signs of weakness . The S&P 500 has declined 4.8% in August, while the Nasdaq Composite has shed 7.4%. The 30-stock PHLX Semiconductor Sector Index, which includes Nvidia, is up 37% this year but down 10.3% in August.
Many of this year’s top-performing stocks have benefitted from the frenzy. Facebook parent Meta Platforms has more than doubled, while chip-stocks Advanced Micro Devices and Lam Research are each up more than 50%. This time around, the bar to
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