Tech Giants Lead the Charge to Record Highs

Responding with vigor, NVIDIA has bolstered American stock markets to unprecedented levels, with the S&P 500 and Dow Jones reaching new heights, while Chinese concept stocks take a substantial dip, exceeding 2%. In the commodities realm, crude oil experienced a momentary plunge of nearly 5%, further complicating the market landscape.

Wall Street Report:

U.S. Stocks See Consecutive Gains

Marking two consecutive days of gains, Wall Street has scaled new peaks; NVIDIA has surged over 2%, setting a record close for the first time in four months. Sadly, the index of Chinese concept stocks plummeted to a monthly low, with notable companies like Xpeng Motors dropping nearly 10%, NIO exceeding a 7% fall, and Pinduoduo diminishing by 6%. The bond market was on hiatus. The dollar index bounced back to a two-month high as the yen dipped to a two-month low, and the off-shore RMB fell nearly 300 points, breaching the 7.10 mark. Cryptocurrency, led by Bitcoin, soared nearly $4,000 at times, breaking through the $66,000 threshold. A strong dollar ushered in a widespread commodity slump: oil prices tumbled near a one-week low, gold swung from a one-week high to a deficit, and base metals halted their two-day gains, with copper diving to a four-week low.

Banking Sector Revival:

Financial Giants Showcase Recovery

Last week’s earnings-surpassing reports from JPMorgan Chase and Wells Fargo have signaled a rebound in U.S. banking profits, refreshing historic highs for the S&P 500 and the Dow. Buoyed by tech stocks, particularly semiconductor shares, European and American markets climbed, with indices like the German stock market, the S&P, and the Dow all closing at all-time highs, accompanied by NVIDIA’s rise and market valuation challenging Apple’s supremacy. Enthusiasm burgeons as investors seek signs of a soft landing for the U.S. economy.

Economic Reverberations:

Fluctuations Amid Geopolitical Concerns

Despite the market’s optimism, looming uncertainties including the upcoming U.S. presidential election in three weeks, the Fed’s ambiguous easing policy, and escalating Middle Eastern geopolitical risks cast a shadow of doubt, keeping investors on edge. As the earnings season commences, focus pivots to corporate performance, with forthcoming reports from giants like Bank of America, Goldman Sachs, and Morgan Stanley.

Federal Reserve Board Governor Christopher Waller has expressed cautious sentiments regarding the potential for higher-than-anticipated economic activity, suggesting a more measured approach to rate cuts in the future. He also hinted at the possibility of reduced rate cuts compared to the substantial decrease in September, predicting the loss of 100,000 non-farm jobs in October due to hurricanes and strikes. This commentary, coupled with that of Minneapolis Fed President Neel Kashkari, supports modest future rate adjustments by the Fed.

Market Movements:

Indices and Commodities Feel the Pulse

The U.S. bond market observed a day of respite for Columbus Day, leaving investors to mull over Waller’s words. Shortly after his speech, U.S. 10-year Treasury futures saw a brief uptick, ultimately maintaining a downward trajectory throughout the day. Statements from these officials confirm the likelihood of less aggressive future rate cuts by the Fed, underpinning the dollar’s rise to a two-month apex and exerting pressure on commodities. OPEC’s third consecutive downward revision of oil demand forecasts triggered a more than 2% dip in oil prices, which, in turn, dragged energy stocks lower. Reports towards the end of the trading session, suggesting Israel would not target Iranian oil and nuclear sites, widened the drop in oil prices to almost 5%. Precious metals like gold and silver declined alongside industrial base metals.

On the US stock market on Friday local time, although the three major indexes rose collectively, Nvidia’s share price suddenly plunged in the late afternoon, and as of the close of trading, the share price fell nearly 2%, and the total market value of $60.3 billion (about 440 billion yuan) was wiped out in a single day. On the same day, Pierre Ferragu, an analyst at New Street Research, a market researcher, issued a warning on Nvidia’s stock and downgraded Nvidia to “neutral.”

According to the latest disclosure documents of the United States Securities and Exchange Commission (SEC), Nvidia CEO Huang Renxun sold 240,000 shares of Nvidia common stock on July 2 and 3 at an average price of $123.2567 per share, worth about $29.5816 million.

Meanwhile, Nvidia is facing a regulatory storm in the European market. Margrethe Vestager, the European Commission’s executive vice president and competition commissioner, warned of a “huge bottleneck” in the supply of Nvidia’s AI chips. Eu regulators are considering whether and what action to take.

Be hit by an air raid

The hot global chip giant – Nvidia, recently suddenly suffered a fierce “air attack”.

On Friday, local time in the United States, Nvidia shares suddenly plunged in the late afternoon, and as of the close of trading, the stock price fell nearly 2%, and the total market value of $60.3 billion in a day.

On July 5, Pierre Ferragu, an analyst at New Street Research, issued a warning on Nvidia stock and downgraded Nvidia to “neutral.”

He believes Nvidia’s stock has limited upside except in a bull market. After rising 240% last year and 157% this year, Nvidia’s stock price has fully reflected the valuation.

“While Nvidia remains the strongest franchise in the AI data center space, near-term expectations and valuations justify a more cautious view on the stock,” Pierre Ferragu wrote in the report.

Pierre Ferragu said revenue models suggest Nvidia’s growth rate will slow to a moderate level, with revenue from graphics processing units (Gpus) expected to grow only 35 percent next year.

Based on Nvidia’s 2019 and early 2020 earnings multiple (35 times), he has a price target of $135, which is 5% higher than Wednesday’s closing price.

Ferragu further said that Nvidia’s P/E ratio could fall as the stock trades at 40 times expected earnings over the next 12 months, compared to 20 times in 2019 when growth slowed to 10 percent.

Still, he believes the company’s fundamental quality remains intact and would only consider buying again if Nvidia’s stock price continues to suffer.

It is worth mentioning that there are very few analysts on Wall Street who have negative views on Nvidia at present. Before that, only Germany’s DZ bank downgraded Nvidia from “buy” to “hold” in May.

According to TipRanks.com, 38 of 41 analysts recommend buying Nvidia shares, three recommend holding them and none recommend selling them.

Thanks to the launch of ChatGPT at the end of 2022, which triggered a boom in artificial intelligence (AI) technology, Nvidia is highly sought after for funding. But in recent weeks, Nvidia’s shares have fallen back as some investors, including founder and CEO Jen-Hsun Huang, have opted to lock in profits.

According to an SEC filing on Friday, Huang sold 240,000 shares of Nvidia common stock on July 2 and 3 at an average price of $123.2567 per share, valued at about $29.5816 million.

Regulatory storm

Meanwhile, Nvidia is facing a regulatory storm in the European market.

Margrethe Vestager, the European Commission’s executive vice president and competition commissioner, warned of a “huge bottleneck” in the supply of Nvidia’s AI chips.

Vestager said that EU regulators were considering whether and what action to take, “we have been asking them questions, but this is still a preliminary step, so far this does not count as regulatory action.”

According to Vestager’s social media accounts, she visited Singapore for three days to participate in a conference organized by the National Artificial Intelligence Core (AI Singapore) to discuss how to elevate AI projects and accelerate the process from research to deployment, and from modeling problems to solutions.

Vestager mentioned that AI chips face tight supply, and the secondary market could help spur innovation and level the playing field. But she noted that dominant companies may face certain behavioral restrictions in the future.

Vestager warned, “If you have that kind of dominance in the market, there are things that small companies can do that you’re not allowed to do.” But as long as you focus on your business and respect that, there shouldn’t be any problems.”

At present, Nvidia’s GPU has become the hottest commodity in the technology industry, attracting many technology giants to throw a lot of money to grab. Nvidia’s flagship product, the H100, is estimated to have helped the company gain more than 80 percent market share, significantly ahead of its main competitors Intel and AMD.

Earlier this week, news broke that French regulators would file an antitrust case against Nvidia, which would be the first law enforcement agency in the world to take antitrust action against the company.

France plans to launch an antitrust case against Nvidia, accusing it of exploiting its market dominance and expressing concern about the AI industry’s deep reliance on CUDA programming tools. Under French antitrust rules, companies that violate antitrust laws can face fines of up to 10 percent of their annual global turnover, though companies can also make concessions to avoid fines.

In November last year, Bruno Le Maire, France’s Minister of Economy, Finance and Industry, Digital Sovereignty, said that Nvidia’s dominance in the AI chip market has increased international inequality and suppressed market competition, and data shows that 92% of the GPU market is occupied by Nvidia.

The European Commission has also been informally gathering comments to determine whether Nvidia may also have violated EU antitrust rules, but it has not opened a formal investigation into monopolistic practices.

Analysts say the EU’s antitrust move reflects concerns about the dominance of U.S. tech giants in new technologies. European companies have long spent less on investment and research and development, causing their growth rate to lag behind that of the United States.

At least some investors are now betting that Nvidia will fall back to Earth as it surges along the way or is poised to smash the “world stock king.”

According to a report released Thursday by S3 Partners, the amount of open short bets against Nvidia now stands at about $34 billion, almost as much as the next largest short bets, Apple and Tesla combined.

S3 data shows that there are currently about $19 billion of open short bets against Apple and about $18 billion on Tesla.

After a multi-day rally, Nvidia shares closed down about 1.18 percent on Thursday after tumbling nearly 6 percent from a record high, giving Apple back its title as the world’s second-most valuable publicly traded company. But even so, Nvidia is still up more than 10% so far this week, and “unlimited” demand for its high-end AI chips has sent Nvidia shares soaring 144% in 2024.

It’s worth noting that, even if the size of the short position seems staggering, short bets on Nvidia currently only amount to about 1% of the stock’s market value, according to LSEG.

Stuart Kaiser, head of U.S. equity trading strategy at Citigroup, said: “Nvidia has the advantage that it is one of the very few companies that can really capture AI revenue. The higher the stock price, the greater the potential for revenue, and of course, the increased risk. But so far, everything looks good.”

According to industry statistics, from the perspective of forward price-earnings ratio and the compound annual growth rate of revenue in the next three years, Nvidia’s stock price is not currently in the camp of overvalued technology stocks in the United States.

Mizuho Securities recently estimated that Nvidia now controls 70 to 95 percent of the market for AI chips used to train and deploy models such as OpenAI GPT. Nvidia’s pricing power lies in its 78 percent gross margin, which is a very high number for a hardware company that has to make and deliver physical products.

Aswath Damodaran, a finance professor at New York University, said: “If you were to design the perfect dynamic company from the ground up, Nvidia would be it. It’s a great story, a CEO who stuck to his ideals and was comfortable with the combination of market conditions. I think you’re looking at one of the greatest growth stories of all time, playing out right in front of you.”