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A bumper earnings report from Nvidia sparked a global stock market rally on Thursday, boosting technology stocks and pushing indexes in the United States, Europe and Japan to all-time highs.
Shares of the chipmaker rose 15% on Thursday after quarterly results and new forecasts released Wednesday evening beat analysts’ expectations.
The latest jump added nearly $260 billion to Nvidia’s market capitalization, and brought its earnings for the year to date to more than $700 billion. The move means Nvidia has leapfrogged Amazon and Google parent Alphabet to become the third most valuable U.S. listed company after Microsoft and Apple.
Nvidia has grown so much and has such a large weight in the S&P 500 that such a significant jump automatically lifts the entire market: Thursday’s increase directly added 0.6% to the index.
More importantly for the broader market, it has also helped reinvigorate investor enthusiasm around the potential of artificial intelligence, with Nvidia boss Jensen Huang declaring that “demand is rising around the world” as generative artificial intelligence has reached “the tipping point”.
An earlier sensational report from Nvidia last May was a key factor in reviving investor enthusiasm for artificial intelligence. Vishal Vivek, a strategist at Citi’s equity trading desk, said that late last year “there were some concerns about [that] the enthusiasm is running out. What this shows is that the topic of artificial intelligence is alive and well. . . this is what the market will take as a key lesson.”
The S&P 500 index rose 1.6%, surpassing the record high set last week, while other big tech groups, including Microsoft, Amazon and AMD, also gained ground.
Meanwhile, the Stoxx Europe 600 and Japan’s Nikkei 225 hit record highs, with technology stocks once again the biggest drivers of Thursday’s gains.
The market impact of Nvidia — which has been directly responsible for more than a quarter of the S&P’s year-to-date growth — has become so large that some investors and analysts were anticipating Wednesday’s financial report as a market-wide risk similar to the release inflation data.
Citi analysis earlier showed that traders in options markets viewed Thursday’s trading session as the biggest “risk event” ahead of the Federal Reserve’s policy meeting next month.
Charlie McElligott, managing director of cross-asset strategy at Nomura, said Nvidia’s “halo effect has almost single-handedly supported” the U.S. stock market in recent months.
The results overshadowed the release on Wednesday of minutes from the Federal Reserve’s latest meeting, which reaffirmed that officials had been cautious in January about cutting rates too quickly.
The narrow leadership of the recent market rally has raised concerns in some quarters about excessive exuberance, especially given that economic growth is expected to slow next year and that inflation in the United States has shown signs of picking up.
Nvidia’s revenue forecasts have risen so quickly that its valuation is not at historically high levels when viewed on a future price-to-earnings ratio, but a number of investors and analysts have warned that some stocks and indexes are approaching the territory of the “bubble”.
Two investors pointed to the rally in Super Micro Computer, a Nasdaq-listed server equipment maker whose stock price has risen 225% this year on enthusiasm for artificial intelligence.
The company announced a $1.5 billion convertible bond transaction Wednesday afternoon, offering an interest rate of 0% to 0.5%.
Ted Mortonson, technology strategist at Baird, said: “There is an imbalance between valuations and fundamentals [in some areas]. This happened in 2000. The market might as well be renamed from Nasdaq to DraftKings – it’s a trading casino.