Nvidia's Success Bolsters AI Trade, Boosting the Stock Market

Following Nvidia’s substantial earnings hit, the demand for artificial intelligence (AI) has surged robustly, dispelling worries that investor enthusiasm for the technology may have peaked. This news revitalized the AI trade, resulting in a significant market rally.

AI-linked companies in which Nvidia has stakes, such as SoundHound and Arm, witnessed their shares rise around 5% on the same day as Nvidia's announcement. Meanwhile, AMD, another firm associated with AI chips, saw its shares surge over 10%. Additionally, Palantir, an AI-driven stock, increased slightly over 3%.

The success of Nvidia extends beyond the realm of technology. It also had a positive rippling effect on other sectors, causing both the S&P 500 and the Dow Jones Industrial Average to reach record closing highs. Furthermore, non-AI-focused businesses such as JPMorgan and Waste Management, also reaped benefits, ending at their highest shares value by the end of Thursday.

This upward trend occurred only a week after an unexpected inflation report caused a minor market drawdown. Despite these obstacles, Federal Reserve officials affirmed that interest rate cuts are likely postponed, in contrast to earlier expectations. Nonetheless, the anticipated market deterrents did not succeed in stunting the AI surge as expected.

According to Julian Emanuel from Evercore ISI, the resilience demonstrated by the market in the face of major macroeconomic hurdles and high stock valuations was noteworthy. Emanuel commented on this phenomenon, stating, "Fear Of Missing Out (FOMO) operates on its own timetable. Stocks can become pricier, and momentum often ends unexpectedly. However, FOMO, for the moment, remains bid."

Jensen Huang, Nvidia's CEO, stated on Wednesday that AI had gotten to a crucial turning point where demand was escalating continuously. The company's robust quarterly earnings were like a shot in the arm for the bullish notion in technology, according to Dan Ives, managing director at Wedbush Securities.

The question that remains is how long this euphoria over AI can persist. From what was observed in Thursday’s market trends, it appears capable of maintaining its solid stance for the time being.

Fundstrat's Head of Research, Tom Lee, expressed his view on this issue to his clients on Wednesday night, stating that it was too soon to declare that we've reached a bubble peak in AI. That sentiment appeared to underscore the larger optimism surrounding Nvidia, AI trade, and the overall market.

This article was written by Josh Schafer, a reporter for Yahoo Finance, and further updates can be obtained by following his handle, X @_joshschafer.