Nvidia Delivers, But Markets Want More

This week, the debate about whether the excitement in artificial intelligence (AI) has run ahead of itself was put to another test. After several strong months for large technology companies, the market started to struggle. Well known investors hit the headlines for selling their technology stocks, and the group of giant US tech companies (often called the “Magnificent Seven”) have fallen nearly 8% from last month’s high. However, investors spent most of the week waiting for one thing: Nvidia’s earnings.

All Eyes on Nvidia – The Centre of Gravity for AI

A bit of context helps explain why. Nvidia is the world’s largest company, and the central supplier of chips that power modern AI systems. When a company reports its earnings, it’s essentially sharing an update on how much money it made and how its business is performing. These updates matter because strong results can lift a company’s share price, while weak ones can bring them down. In the case of Nvidia, its results now land with the weight of a major economic event, because so many other companies – from cloud providers to startups – rely on its hardware.

Heading into Nvidia’s earnings announcement on Wednesday after the market close, expectations were sky-high. Revenue was forecast to grow more than 50% from last year. Anything short of this risked souring sentiment even further.

Nvidia Delivers – and For a Moment, So Did Markets

Nvidia delivered. Revenue rose 62% from a year earlier, and profits came in ahead of expectations. Its key data-centre division produced more than $50 billion in sales – a remarkable figure and a reminder of how quickly spending on AI infrastructure is still expanding.

CEO Jensen Huang addressed the elephant in the room directly: the talk of an AI bubble. From his point of view, demand remains strong, and the long-term opportunity is still developing.

Markets liked what they heard, and Nvidia shares jumped and futures for the broader market followed. For a moment at least, it looked like the week’s anxiety might ease.

A Short Rebound

Despite Nvidia’s strong numbers, by the time the US markets opened on Thursday, the mood shifted again. Investors argued that even strong Nvidia results weren’t enough to quiet concerns about whether AI spending is generating the profits needed to justify today’s valuations. These short-term questions force investors to differentiate between excitement and evidence, as seen in the past week. Despite the strong long-term themes that have been driving markets this year, especially around technology and productivity, recent market movements highlight the importance of having a diversified portfolio.

The Noise

• It was a poor week for markets, as almost all major markets fell. UK markets had their worst week since April, as renewed worries about an AI-driven market bubble hit UK and European equities. In the US, AI jitters persisted, as major tech names recorded significant losses. These losses, however, do little to detract from the strong performance markets have had year-to-date.
• The US dollar performed well this week, as measured by the dollar index (a gauge of the US dollar against a basket of major currencies), and was not far from a six-month high. This came as investors reacted to US labour data and fading expectations for a December Federal Reserve interest rate cut. As a result, the Euro fell relative to the US dollar, as did the British pound, coming close to a seven-month low.
• In bond markets, the UK 10-year government bond yield (which moves inversely to bond prices) rose to 4.6%, the highest level in five weeks, amid uncertainty surrounding Rachel Reeves’ autumn budget that has overshadowed expectations for a potential interest rate cut in December. In the US, the 10-year Treasury yield dipped as traders digested the delayed jobs report. The US economy added 119,000 jobs in September, well above the expected 50,000, while the unemployment rate rose slightly to 4.4% and hourly wages only grew 0.2% from the prior month, the softest pace in three months.