How the AI ​​explosion could save the market and maybe the economy


An Nvidia logo is seen on a company building at an industry park in Tianjin, China, on February 7, 2019.

VCG | Visual China Group | Getty Images

A Blockbuster Profit Report from wednesday NVIDIA clarified an important point for both markets and the economy: For better or worse, artificial intelligence is the future.

Whether it’s personal shopping, self-driving cars or the widespread use of robotics for healthcare, gaming and finance, AI will become a factor in virtually everyone’s life.

nvidia’s massive fiscal first quarter earnings The firm’s possession of an elite class of tech leaders with a $1 trillion market valuation and clear leadership position in both Wall Street and Silicon Valley helped quantify the phenomenon.

“AI is real, AI is not a fad and we are only in the early innings,” said Steve Blitz, chief US economist at TS Lombard. “Does it change the course of the economy over the course of the next three to six months? Probably not. Does it change the course of the economy over the course of the next three to six years? Absolutely, and in very interesting ways.”

Some of the changes predicted by the Blitz are a reduction in demand for foreign labor, a “point of sale” effect where coding and creative writing can be done by machines instead of people, and many other activities that go beyond what now appears obvious.

The development of products such as OpenAI’s ChatGPT, a chatbot that interacts with a user, has helped bring home the potential.

“It’s hard for me to overstate the value or impact of AI, and it’s in keeping with my view that this coming decade is about broader application of technology than we’ve seen to date, beyond computers and phones.” seen, and there’s a tremendous upside to that application,” Blitz said.

isolated effect so far

For Nvidia, the upside has already become apparent.

As if Profit of $1.09 per share on revenue of $7.19 billionBoth were not enough, well above Wall Street estimates The company guided that it expected sales of $11 billion for the current quarter, driven primarily by its leadership position in the AI ​​chip-supply business .

Shares were up more than 26% as of Thursday afternoon, taking the company’s market value to more than $950 billion.

Broader market response, however, was underwhelming.

While the S&P 500 Semiconductor index jumped 11.4%, the broader Nasdaq Composite More Silence rose 1.7%. S&P 500 was up about 0.9%, while Dow Jones Industrial Average Slipped over 50 points as investors continue to worry credit limit negotiation in Washington.

At the same time, worry about economic downturn Continuing – despite his enthusiasm over AI, Blitz still thinks the US is headed for a recession – and the market’s lopsided reaction is reminiscent of a stratified economy in which technological gains are slowly spread.

“The spillover and benefits that the rest of the economy derives from AI is a multi-year, multi-decade process,” said Peter Bockover, chief investment officer at Bleakley Advisory Group. “Is this an incremental piece to growth or is it taking away spending from other things now because every other part of the economy outside of spending on travel, leisure and restaurants isn’t doing well?”

Bokover pointed out that small-cap stocks, for example, were in big losses on Thursday. Russell 2000 Off about 0.8% in early afternoon trading.

‘Serious hole in the economy’

This happened even as it seemed likely that those companies would benefit from cost-saving aspects of AI such as the ability to reduce staffing expenses. Nvidia’s main competitors in the chip space, intel, was also down 6.2% on the session. Quarterly tech earnings declined an overall 10.4% this week, according to FactSet, although some of the biggest firms beat Wall Street’s lower expectations.

“There are some serious flaws in the economy that we can’t ignore here,” Bokover said. “If the AI ​​craze calms down, people will see that the underlying business trends of Microsoft, Google and Amazon are clearly slowing down because we all breathe the same economic air.”

AI also hasn’t been a winner for everyone.

DataTrek Research looked at nine large AI-related companies that came to market via initial public offerings over the past three years and found that their collective valuations are down 74% from their initial levels.

group is included uipath, Pagaya Technologies And Exscientia, Their shares are up an average of 41% in 2023, but the seven biggest tech companies, a group that includes Nvidia, have risen an average of 58%.

“So far, Big Tech has collectively benefited the most from the buzz around Gen AI,” wrote Nicolas Colas, co-founder of Datatrek. Their ability to take advantage of big competitive moots will continue.” “General AI could make US Big Tech even bigger and more systemically important, rather than allowing US Big Tech to play the classic role of disruptive innovator.”

Indeed, market veteran Art Cashin noted without the Big Seven stocks, the S&P 500 would surrender all but 8% of its gains this year.

“You know, high tide supposedly lifts all boats,” UBS’s director of floor operations said on CNBC.screaming in the street“This is a very selective tide. And I’m not ready to throw the confetti just yet.”

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