tech stocks rally on AI euphoria

US tech stocks extended their winning streak last week and the Nasdaq Composite closed higher for the fifth straight week which took the index’s YTD gains to 24%. The AI euphoria has helped the tech-heavy index add $4 trillion so far in the year.

Last week’s AI rally was led by the splendid rise in Nvidia, which rose 25% and is now up 167% for the year. The company looks set to join the $1 trillion market cap club which currently consists of only Apple, Amazon, Alphabet, and Microsoft.

Nvidia reported revenues of $7.19 billion in the quarter that ended in April – a YoY rise of 19% – and ahead of the $6.52 billion that analysts were expecting.

It forecast revenues of $11 billion for the fiscal second quarter of 2024 which is way above the $7.15 billion that analysts were expecting.

In his prepared remarks, Nvidia CEO Jensen Huang said, “A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”

Notably, the generative AI push is helping companies like Nvidia whose high-end chips are necessary for the technology.

US Tech Stocks Rally on AI Euphoria

Other AI stocks have also gained this year and C3.ai – which is among the rare listed pure-play AI names is up 156% YTD – while the Global X Robotics and Artificial Intelligence ETF has gained 30%, outperforming the Nasdaq.

AI euphoria helped fuel a rally in tech stocks that are working on AI. Alphabet and Microsoft for instance have gained 41% and 39% respectively in 2023.

Notably, according to Societe Generale SA strategist Manish Kabra, if not for AI stocks, the S&P 500 would have been in the red this year.

Sensing the opportunity in generative AI, Roundhill Investments launched the Generative AI & Technology ETF (NYSE: CHAT) last week.

Meanwhile, while AI has caught the attention of investors some are wary of the hype. Speaking on Bloomberg TV David Kostin, the chief US equity strategist at Goldman Sachs advised caution pointing to the “euphoria.”

Michael Hartnett, chief investment strategist at Bank of America Global Research also echoed similar views and has termed the AI-driven rally as a “baby bubble.”

Even Berkshire Hathaway vice chairman Charlie Munger said earlier this month that he is “skeptical of some of the hype in AI.”

Artificial Intelligence is a Long-Term Opportunity

Artificial Intelligence meanwhile looks like a long-term opportunity though and Goldman Sachs’ senior strategist Ben Snider predicted that AI could increase productivity by 1.5% annually which can increase S&P 500 profits by 30% or higher over the next 10 years.

He added that while tech companies look like the “immediate winners” “the real question for investors is who are going to be winners down the road.”

Snider drew parallels with the tech bubble of the late 1990s and said back then, “it would be very hard to envision Facebook or Uber changing the way we live our lives.”

Notably, most tech companies of that era faded away and only a few like Amazon not only survived but thrived.

Amazon is incidentally using AI in multiple aspects of its business – from improving logistics to integrating AI in new Echo products.

All said, for now, investors are cheering the AI wave as is reflected in the price action of tech stocks as well as the interest towards unlisted startup AI companies like ChatGPT’s parent company OpenAI.

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