Market Pulse – Nvidia: Chips on the table

Welcome to the first edition of Market Pulse, your indispensable guide to all the latest market-moving events.

In the calendar 

• Monday: Earnings: Palo Alto Networks, Zoom.
• Tuesday: Canada inflation (April), Australia’s central bank minutes. Earnings: XPeng.
• Wednesday: UK inflation (April), US central bank minutes, Japan trade balance (April). Earnings: Nvidia, Snowflake, Synopsys.
• Thursday: Germany manufacturing activity (May). UK preliminary PMIs (May), Eurozone PMIs (May). Earnings: Intuit, Medtronic.
• Friday: Japan inflation (April), UK retail sales (April), US durable goods orders (April).

What you might’ve missed last week

US

• Encouraging US economic data fuelled an all-asset rally.
• ‘Meme’ stocks roared back, then didn’t.

Global

• Commodity prices hit a 13-month high.

Asia

• “Big Short” legend Michael Burry boosted bets on China’s big tech.

UK

• Wages in the UK grew by more than expected in the first quarter of 2024, while the unemployment rate rose.
• The FTSE 100 hit record highs.

Why it matters

US inflation data rolled in without any nasty surprises, and a separate peek at retail sales showed shoppers were tightening their belts. It was the perfect cocktail for investors: it hinted that inflation is on track to fall and that shoppers aren’t giving it any fresh reasons to change course. That only boosts the odds of rate cuts within the year. That sent stocks higher, with US and global shares hitting new highs. 

With investor sentiment boiling up again, it’s perhaps no shocker that meme stocks made another attempt at a comeback. Popular day trader Keith Gill (a.k.a. “The Roaring Kitty”) popped back up on social media after a three-year hiatus and sent shares of GameStop and AMC skyward on Monday and Tuesday. But by midweek, the hype had cooled and prices had tumbled. Maybe it was all irrational exuberance, or maybe the more tempered market swings this time around are a sign of a more stable market environment. But one thing is certain: the Reddit r/WallStreetBets crowd that drove the meme-stock frenzy in 2021 can still shake things up.

A key measure of raw material prices hit its highest level since April 2023, potentially complicating central banks’ plans to rein in inflation. The Bloomberg Commodity Spot Index, which tracks 24 energy, metal, and agricultural contracts, has been trending higher, fueled by supply disruptions, geopolitical tensions, and investor appetite. 

Michael Burry’s Scion Asset Management went big on JD.com and Alibaba in the first three months of the year as Chinese stocks bottomed. JD.com became Scion’s top holding with an 80% stake boost, and Alibaba a close second. Known for his massive “short” bet on the mid-2000s US housing bubble, Burry has seen his investments in Chinese tech pay off this year with JD.com up over 18% and Alibaba up 12%, helped by government support measures and better profits.

Following unexpected wage growth in Britain, the Bank of England’s chief economist has suggested interest rate cuts this summer are likely. Traders are now implying a 50% chance of a cut by June, with a more definite 25 basis point reduction expected by August and possibly deeper cuts by the end of the year. And given UK economy has shaken off its funk and is growing at its fastest pace since 2021, it may be poised to drop the unwanted moniker of being a “value trap”.

The focus this week: Nvidia’s going to give investors the scoop

Analysts and investors have high hopes for Nvidia’s big quarterly update on Wednesday: They’re predicting $24 billion in revenue, over three times more than a year ago. They’ll be keenly focused on how well the company’s data centre segment is doing, including its graphics processing units (GPUs), which make powerful chips for AI tasks. The wide-reaching segment makes up about three-quarters of Nvidia’s revenue.

This release could validate Nvidia’s nifty $2.2 trillion valuation or tone down the fervour surrounding AI stocks. Nvidia’s shares have soared to $950, from $114, in less than two years, thanks in a big way to skyrocketing demand for AI and its data centres. It’s been the ultimate “pick-and-shovel” play in this tech revolution, with its huge competitive advantage around its GPUs.

And with cloud service behemoths like Amazon, Microsoft, and Google looking to spend even more than expected on AI, Nvidia likely won’t be dropping down to a lower gear anytime soon. That’s not to say it’ll all be smooth sailing. Nvidia faces growing competition from Intel, AMD, and Arm. Plus, its heavy reliance on the AI chip market could backfire if the industry sees a hiccup along the way. And because investor expectations are already sky-high, even a hint of bad news could disproportionately impact the stock price. That alone has some investors wondering whether Nvidia’s biggest gains are behind it and whether it might be time to diversify into this trend’s other stocks. Companies like Meta, Intuit, Arm, Micron, CrowdStrike, Equinix, or even AI-powering utilities like Duke Energy are gaining attention as the potential next big play.  

Moneyfarm Share Investing

With Share Investing, you can enjoy direct access to the stock market, with a broad range of assets available including stocks, ETFs, bonds and mutual funds. Share Investing offers a more personalised investing experience alongside a managed portfolio, with more opportunities to invest according to your values and financial goals. Plus, with the ‘Analytics’ feature, you benefit from a comprehensive view of your investments for more informed decision-making.

Disclaimer

This publication has been produced with Finimize. As with all investing, your capital is at risk. This publication does not contain and should not be taken as containing, investment advice, personal recommendation, or an offer of or solicitation to buy or sell any financial instruments. Prospective investors should seek independent financial, tax, legal and other advice before making an investment decision.