Market report: Nikkei hits all-time high and Nvidia rides AI wave
- Japan’s Nikkei beats previous record reached in 1989, closing at 39098.68 as strong earnings and tech optimism buoy the index.
- Federal Reserve policymakers’ warnings of caution fail to dampen Wall Street enthusiasm after more stellar tech results.
- Nvidia beats forecasts again, providing a rising tide which lifts other AI-related stocks.
- The FTSE 100 is expected to be in positive territory in early trade, buoyed by positive sentiment from Asia and Wall Street.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“The Nikkei has re-found its mojo but it’s been a long time coming. The Japanese stock market peaked in December 1989, and in the years since the Nikkei has been unable to break higher. But the recent red-hot rally in Japanese stocks has helped the index finally beat the previous record set 34 years ago.
The Nikkei has been buoyed by another wave of excitement for the prospects for the tech sector, coming off the back of Japanese companies logging record quarterly profits. The weaker yen has helped exporters like Toyota, Honda and Sony, with strong demand for vehicles, machinery and computer chips from around the world. Exports surged by 12% in January, inbound tourism is making a comeback and after years of deflation, it’s finally in the rear-view mirror. The Nikkei’s performance has also been boosted by corporate governance reforms to make businesses more accountable to shareholders which appear to have enthused investors, including Warren Buffett who has been bullish towards Japanese stocks.
Fresh Fed caution not curbing enthusiasm
It seems not even fresh caution from central bankers will curb the enthusiasm on Wall Street which is emanating to other indices. Investors are soaking up the AI-led rally and are taking a glass half full attitude towards details in minutes of the Federal Reserve’s last meeting which showed that although policymakers are not in a rush to cut rates, they had greater confidence that inflation was receding. Oil prices have headed a little higher, with Brent Crude trading above $83 dollars amid concerns about supply. There have been a number of outages at key refineries while worries persist about the potential escalation of tensions in the Middle East.
With Nvidia again beating forecasts, its stellar results are providing a rising tide, lifting other semi-conductor stocks. UK chip designer Arm surged in after-hours trading, and California based Advanced Micro Devices (AMD) also clawed back lost ground. While budget may be being trimmed elsewhere, companies are ringfencing money to beef up their future AI capabilities, with the fear of missing out on this revolutionary technology front and centre.”
Nvidia cements its reputation
Derren Nathan, head of equity research, Hargreaves Lansdown:
“Nvidia is cementing quite a reputation for setting exceptional growth targets and then beating them. Fourth quarter revenues reported after yesterday’s close saw revenues more that treble to $22.1bn. Underlying earnings per share leap nearly six-fold to $5.16 with both metrics sailing past consensus forecasts. Nvidia’s managing to deliver a staggering performance without overly extending the cost-base, testament to its design-led asset-light business model. Sales guidance for the current quarter of about $24bn has also eclipsed the street’s expectations of $21.9bn. That’s reassured the market with the shares up 9% in after-hours trading more than compensating for the jitters seen earlier in the week.
The boom in Artificial Intelligence is living up to the hype and driving demand from data centers for the firm’s Hopper GPU computing platform. Nvidia’s shares have quadrupled in value since the emergence of Chat GPT in November 2022. It’s now one of the largest companies in the S&P 500 and appears to be closing in on the $2 trillion threshold so the bar has been set high. But on an earnings basis the valuation doesn’t look too terrifying and CEO Jensen Huang for one sees this as just the beginning of two industry-wide transitions, the first being the move from general to accelerated computing, which in turn has enabled the birth of generative artificial intelligence.
However, there are some obstacles to be mindful of. Thers’s been a steep decline in China where shipments were paused as management took stock of restrictions imposed by the US government. New products have been rolled out to mitigate this but it’s too early to call if they’ll be a success.
Ther’s also increasing competition from multiple sources including specialists such as AMD, end users (think Amazon, Google, Meta and Microsoft) and perhaps even the flag bearer of artificial intelligence, Open AI which is reportedly looking to raise up to $7 trillion to develop its own chip empire.
But dethroning NVIDIA will be easier said than done. With 35,000 parts its supercomputers are incredibly complex and form the backbone of the gold-standard for AI Infrastructure. It will take a brave CFO to sign off huge commitments to lesser-proved solutions. But it’s not taking its market leadership for granted, and is seeking to become an embedded partner with many of its would-be competitors. The recent launch of a new unit to help customers design bespoke chips seems a shrewd move. Leveraging NVIDIA’s years of expertise would certainly seem a lower-risk strategy than an open cheque and an empty drawing board.”
