Jen-Hsun Huang, president and chief executive officer of Nvidia Corp., speaks throughout the company’s event at Mobile World Congress Americas in Los Angeles, California, U.S., on Monday, Oct. 21, 2019.
Patrick T. Fallon | Bloomberg | Getty Images
Forget in regards to the debt ceiling. Tech investors are in buy mode.
The Nasdaq Composite closed out its fifth-straight weekly gain on Friday, jumping 2.5% previously five days, and is now up 24% this yr, far outpacing the opposite major U.S. indexes. The S&P 500 is up 9.5% for the yr and the Dow Jones Industrial Average is down barely.
Excitement surrounding chipmaker Nvidia’s blowout earnings report and its leadership position in artificial intelligence technology drove this week’s rally, but investors also snapped up shares of Microsoft, Meta and Alphabet, each of which have their very own AI story to inform.
And with optimism brewing that lawmakers are near a deal to boost the debt ceiling, and that the Federal Reserve could also be slowing its pace of rate of interest hikes, this yr’s stock market is beginning to look less like 2022 and more just like the tech-happy decade that preceded it.
“Being concentrated in these mega-cap tech stocks has been where to be on this market,” said Victoria Greene, chief investment officer of G Squared Private Wealth, in an interview on CNBC’s “Worldwide Exchange” Friday morning. “You can not deny the potential in AI, you can’t deny the earnings prowess that these firms have.”
To start out the yr, the predominant theme in tech was layoffs and price cuts. Lots of the largest firms within the industry, including Meta, Alphabet, Amazon and Microsoft, were eliminating hundreds of jobs following a dismal 2022 for revenue growth and stock prices. In earnings reports, they emphasized efficiency and their ability to “do more with less,” a theme that resonates with the Wall Street crowd.
But investors have shifted their focus to AI now that firms are showcasing real-world applications of the long-hyped technology. OpenAI has exploded after releasing the chatbot ChatGPT last yr, and its biggest investor, Microsoft, is embedding the core technology in as many products as it could actually.
Google, meanwhile, is touting its rival AI model at every opportunity, and Meta CEO Mark Zuckerberg would much relatively tell shareholders about his company’s AI advancements than the corporate’s money-bleeding metaverse efforts.
Enter Nvidia.
The chipmaker, known best for its graphics processing units (GPUs) that power advanced video games, is riding the AI wave. The stock soared 25% this week to a record and lifted the corporate’s market cap to just about $1 trillion after first-quarter earnings topped estimates.
Nvidia shares at the moment are up 167% this yr, topping all firms within the S&P 500. The subsequent three top gainers within the index are also tech firms: Meta, Advanced Micro Devices and Salesforce.
The story for Nvidia relies on what’s coming, as its revenue in the newest quarter fell 13% from a yr earlier due to a 38% drop within the gaming division. But the corporate’s sales forecast for the present quarter was roughly 50% higher than Wall Street estimates, and CEO Jensen Huang said Nvidia is seeing “surging demand” for its data center products.
Nvidia said cloud vendors and web firms are buying up GPU chips and using the processors to coach and deploy generative AI applications like ChatGPT.
“At this point within the cycle, I believe it’s really vital to not fight consensus,” said Brent Bracelin, an analyst at Piper Sandler who covers cloud and software firms, in a Friday interview on CNBC’s “Squawk on the Street.”
“The consensus is, on AI, the massive get larger. And I believe that is going to proceed to be the most effective method to play the AI trends.”
Microsoft, which Bracelin recommends buying, rose 4.6% this week and is now up 39% for the yr. Meta gained 6.7% for the week and has greater than doubled in 2023 after losing almost two-thirds of its value last yr. Alphabet rose 1.5% this week, bringing its increase for the yr to 41%.
Certainly one of the largest drags on tech stocks last yr was the central bank’s consistent rate of interest hikes. The increases have continued into 2023, with the fed funds goal range climbing to five%-5.25% in early May. But on the last Fed meeting, some members indicated that they expected a slowdown in economic growth to remove the necessity for further tightening, based on minutes released on Wednesday.
Less aggressive monetary policy is seen as a bullish sign for tech and other riskier assets, which generally outperform in a more stable rate environment.
Still, some investors are concerned that the tech rally has gone too far given the vulnerabilities that remain within the economy and in government. The divided Congress is making a debt ceiling deal difficult because the Treasury Department’s June 1 deadline approaches. Republican negotiator Rep. Garret Graves of Louisiana told reporters Friday afternoon within the Capitol that, “We proceed to have major issues that now we have not bridged the gap on.”
Treasury Secretary Janet Yellen said in a while Friday that the U.S. will likely have enough reserves to push 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 following the recent rebound in tech stocks, “it’s probably time to take a few of that off the table.” She said her group has spent lots of time taking a look at the enterprise market and where deals are happening, and so they’ve noticed some clear froth.
“You are either AI or you are not without delay,” McCartney said. “We actually should be able to see if we do not get an ideal debt ceiling, if we do not get an ideal landing, what does that mean, because at these sorts of levels we’re definitely pricing within the U.S. hitting the high note on every part and that looks as if a very precarious place to be given the risks on the market.”
WATCH: CNBC’s full interview with UBS’ Alli McCartney