Stocks stay on rollercoaster despite strong Nvidia earnings
By Lewis Krauskopf and Dhara Ranasinghe
NEW YORK/LONDON (Reuters) – Nvidia Corp’s strong earnings report provided only a brief reprieve from concerns plaguing stocks about the returns on relentless AI investments and lofty valuations on Wall Street.
AI darling Nvidia surprised Wall Street on Wednesday with surging growth after several quarters of slowing sales and a fourth-quarter forecast that beat expectations.
But the initial relief for world stock markets broke on Thursday as investors refocused on the headwinds that dragged the S&P 500 index and the tech-heavy Nasdaq Composite to record highs late last month. Investors also grappled with the delayed release of September employment data, which strengthened belief that the Fed would not cut interest rates for a third consecutive meeting in December.
“This is a coordinated risk from trading tech stocks, crypto, etc. due to concerns about valuations and leverage,” said Nationwide Chief Market Strategist Mark Hackett. “The fact that this was an intraday decline rather than a decline in the deficit indicates fatigue.”
Nvidia’s positive results did not alleviate concerns about highly valued tech stocks falling again amid ongoing concerns about whether AI spending will pay off.
Angelo Kourkafas, senior global investment strategist at Edward Jones, said Nvidia’s results “encourage and support the AI story.” “But… I think there is broad skepticism about whether AI will be successful on the return side in the next one to three years.”
Global stocks have fallen more than 3% this month, driven in part by concerns that the rally in tech stocks has gone too far and too fast.
“Concerns about technology will continue and we will likely face the same concerns every quarter as markets question concentration,” said Seema Shah, chief global strategist at President Global Investors in London.
“This story will not disappear.”
Shah said that while he is overweight US stocks, he is also wary of concentration risks, which is one of the reasons he is looking at European stocks.
AI COMPANY RESULTS ARE AS IMPORTANT AS DATA PRESSURE
As artificial intelligence emerges as a megatrend, market sentiment depends on earnings results from AI pioneer chipmaker Nvidia and other technology companies, investors and analysts say. They are as important as monthly economic data in shaping views on the economic outlook.
Shares of Nvidia are down more than 2% after a sharp rise in early trading. The S&P 500 lost 1.2% and the Nasdaq fell 1.7%. The MSCI global equity index traded down 0.7 percent.
Morgan Stanley said Thursday it canceled its forecast that the Fed would cut interest rates by a quarter point at its December meeting after the Labor Department released data showing nonfarm payrolls rose by a more-than-expected 119,000 in September. The report was delayed by more than a month due to the government shutdown.
“There’s a sense that the Fed is still in a fog and we’re not going to get any support from monetary policy in the short term,” said Art Hogan, chief market strategist at B. Riley Wealth. “I think this is a bigger impact (in today’s market) than the questioning about AI valuations.”
“The positive here is that the most speculative segments of the market are experiencing much-needed sales.”
Fed Governor Lisa Cook did not support the sentiment, saying historically rising prices in the stocks, corporate bond, housing and leveraged loan markets could herald a major pullback in valuations.
AI and TECH STOCK CONCERNS CONTINUE
Thursday’s action showed that investors should prepare for a bumpy ride.
“Investors need to be concerned about bubble risks,” Mark Haefele, chief investment officer at UBS Global Wealth Management, told reporters on Thursday regarding the 2026 outlook. he said.
Share prices of the so-called “Magnificent Seven” companies, including Nvidia and Meta, have been rising rapidly over the past few years, raising fears about the market share of just a few names.
Technology companies, while still doing well on a yearly basis, have been among the stock market’s biggest decliners in recent days.
The S&P 500 technology sector’s forward price-to-earnings ratio (a measure of a company’s value compared to future earnings) has risen nearly 30x recently, well above the 10-year average of 22.2.
The craze for AI stocks has sparked comparisons with the dotcom boom and bust of the 1990s, while concerns are also growing about the debt inherited by tech firms.
David Trainer, CEO of investment research firm New Constructs, said in a note that Nvidia generated $60 billion in free cash flow in the last 12 months. It needs to generate $2.1 trillion in annual cash flow within 10 years to justify its current stock price, he said.
Speaking ahead of Nvidia results on Wednesday, Amundi, Europe’s largest asset manager, said megacap shares were weak.
Vincent Mortier, Amundi’s CIO, said that while most of the companies did not sell stocks in the portfolio, they hedged with derivatives that gave him the option to sell.
(Reporting by Dhara Ranasinghe; additional reporting by Lewis Krauskopf, Chibuike Oguh, Yörük Bahçeli, Caroline Valetkevitch; Editing by Alden Bentley, Elisa Martinuzzi, Ros Russell and Diane Craft)
