Stocks Rally as AI Craze Sweeps Across the World: Markets Wrap

(Bloomberg) — The stock rally powered ahead as Nvidia Corp.’s bullish outlook rekindled the artificial-intelligence mania and data showed the world’s largest economy is still going strong.

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From the US to Europe and Japan, equities hit all-time highs, with the most-valuable chipmaker up 16% Thursday and adding $277 billion to its market capitalization. That’s the biggest single-session increase in value ever — eclipsing a $197 billion gain made by Meta Platforms Inc. With the numbers now in, bulls are calculating Nvidia’s new price-to-earnings ratio, or how much investors are paying for future growth. Put another way, the company’s profits have been growing faster than its shares.

“Nvidia got to where it is because of extremely strong earnings and revenue,” said James Demmert, chief investment officer at Main Street Research. “When a company posts 265% year-over-year revenue growth — like Nvidia did — it deserves a premium valuation.”

The MSCI ACWI Index of both developed and emerging-market shares rose to its highest level ever. The Nasdaq 100 added 3%, while the S&P 500 saw its biggest gain since January 2023. The $16 billion VanEck Semiconductor ETF (SMH) jumped 6.8%. Advanced Micro Devices Inc. and Broadcom Inc. — two other chipmakers expected to benefit from AI growth — rallied to records. Super Micro Computer Inc., which has become a darling for investors wanting exposure to the revolutionary technology, soared 33%.

Equities were also buoyed by solid manufacturing, housing and labor-market data, with traders taking more hawkish Fedspeak in stride. Treasury 10-year yields were little changed at 4.32%.

“Few things are more certain than death, taxes, and Nvidia beats on earnings,” said Ryan Detrick at Carson Group. “The bar was set quite high, and incredibly they’ve once again stepped up and hit a home run.”

Nvidia’s market capitalization has now increased by more than $700 billion this year — with its valuation now topping $1.9 trillion — as investors bet that the company will remain the prime beneficiary of an AI computing boom.

Companies such as Inc., Meta Platforms, Microsoft Corp. and Alphabet Inc.’s Google are Nvidia’s largest customers — accounting for nearly 40% of its revenue, — as they rush to invest in hardware for AI computing.

“Demand for AI is surging worldwide across companies, industries and nations,” said Tom Hulick at Strategy Asset Managers. “We own NVDA and continue to hold the company. This is an exciting momentum play that we have been promoting and participating with for a few years now.”

Demmert at Main Street Research says that for investors who already own Nvidia, the recommendation would be to hold the stock and avoid selling in order to capture future expected growth “as we are still early in this transformative AI technology.”

“For investors who don’t own the stock, we would be buying on any weakness,” he noted. “With Nvidia’s stock, there will be corrections and bumps along the way, but the stock will continue to climb the wall of worry.”

Nvidia’s results come as a relief for AI bulls, as expectations have improved significantly, according to Solita Marcelli at UBS Global Wealth Management. Despite the industry surge, she sees potential for further gains in technology shares — especially those that would benefit from the AI revolution.

“We think the near-term momentum in AI-related stocks is likely to continue,” Marcelli noted. “To position, we maintain our preference for semiconductors and software, and see opportunities in beneficiaries of AI edge computing, big tech, and their partners.”

Nvidia’s blockbuster results also underscored the tech dominance over the rest of the stock market, with the “Magnificent Seven” group of megacaps leading gains.

To Chris Senyek at Wolfe Research, US equities are poised to power ahead over the next two to three weeks — with the AI-leveraged names, most of the “Mag 7,” and momentum themes driving the gains.

Other stock-market industries are not rallying as strongly as the tech sector.

“We still believe it is going to be important for the stock market to broaden out a lot more than it has this year if it’s going move a lot more than it already has so far this year,” said Matt Maley at Miller Tabak + Co. “What we’re trying to say is that although the tech sector is the most important one for the stock market right now, there are still plenty of opportunities in other sectors in the marketplace.”

The tech rally has propelled the valuation of the Nasdaq 100 to an elevated level versus history, with a similar picture for the S&P 500. Lofty valuations could ultimately curb more gains as investors weigh how much they’re willing to pay for stocks valued on future growth.

Still, Citigroup Inc. strategist Scott Chronert said recently that index price-to-earnings readings could be misleading…

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