The Nasdaq Composite closed higher for the fifth consecutive week last week, extending its winning run in US technology companies, pushing its year-to-date gains to 24%. The tech-heavy index has added $4 trillion so far this year with the assistance of the AI enthusiasm.
Nvidia, which climbed 25% and is now up 167% for the year, was the driving force behind last week’s AI rally. Currently, only Apple, Amazon, Alphabet, and Microsoft are members of the $1 trillion market cap club. The firm is destined to join them.
In the quarter that concluded in April, Nvidia reported revenues of $7.19 billion, a YoY increase of 19%, and more than the $6.52 billion that experts had predicted.
In contrast to the $7.15 billion that experts had predicted, it predicted sales of $11 billion for the second fiscal quarter of 2024.
According to the prepared statements of Nvidia CEO Jensen Huang, « A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process. »
Notably, the push for generative AI is beneficial for businesses like Nvidia, whose top-of-the-line CPUs are required for the technology.
US Tech Stocks Rise on AI Euphoria
The Global X Robotics and Artificial Intelligence ETF has increased 30% this year, outpacing the Nasdaq, while C3.ai, one of the few public pure-play AI firms, is up 156% YTD. Other AI stocks have also increased this year.
Stocks of tech companies focusing on AI rose as a result of the AI hype. For instance, Alphabet and Microsoft had gains of 41% and 39%, respectively, in 2023.
Notably, according to Societe Generale SA strategist Manish Kabra, the S&P 500 would have seen a loss this year if not for AI equities.
Given the potential of generative AI, Roundhill Investments this week introduced the Generative AI & Technology ETF (NYSE: CHAT).
While AI has attracted the interest of investors, others are leery of the hype. David Kostin, the head of US stock strategy at Goldman Sachs, gave a cautionary speech on Bloomberg TV, warning against the « euphoria. »
Similar opinions were expressed by Michael Hartnett, chief investment strategist at Bank of America Global Research, who described the AI-driven surge as a « baby bubble. »
This month, Charlie Munger, vice chairman of Berkshire Hathaway, admitted that he is « skeptical of some of the hype in AI. »
An Opportunity for the Future Is Artificial Intelligence
Ben Snider, senior analyst at Goldman Sachs, claimed that artificial intelligence (AI) may enhance productivity by 1.5% yearly, which could raise S&P 500 earnings by 30% or more over the next 10 years. In the meanwhile, AI appears to be a long-term potential.
The « real question for investors » is who will succeed in the future, he continued, even though IT companies appear to be the « immediate winners. »
Snider drew comparisons to the late 1990s tech boom and stated that at the time, « it would be very hard to envision Facebook or Uber changing the way we live our lives. »
Notably, only a select handful, including Amazon, not only survived but also prospered during that period as other internet businesses fell away.
Inadvertently, Amazon uses AI in many facets of its company, from bettering logistics to including AI in new Echo devices.
Overall, investors are embracing the AI wave for the time being, as seen by the price movement of tech stocks as well as the interest in unlisted startup AI businesses like ChatGPT’s parent company OpenAI.
