Your portfolios in brief
This week, we've chosen to talk to you about Nvidia shares, which once again reported better-than-expected quarterly results. The company posted sales of $4.28 billion, against an expected $3.9 billion, up 14% in just one year. The company said this performance was due to an increase in demand for its GPU chips from cloud providers as well as major consumer Internet companies. These chips are used to train and deploy generative AI applications such as OpenAI's ChatGPT.
Here are the most important figures that analysts were expecting in relation to Refinitiv's consensus estimates for the quarter ending in April:
- EPS: $1.09, adjusted, versus 92 cents expected
- Sales: $7.19 billion, versus $6.52 billion expected
"The computing industry is going through two simultaneous transitions: accelerated computing and generative AI," said Jensen Huang, founder and CEO of NVIDIA.
With its latest results, Nvidia Corp. is approaching a market value of $1,000 billion, and could become the ninth company to reach this milestone. Following these results, in post-closing trading, the stock broke a record by reaching $391.50, propelling its market valuation by $200 billion to $950 billion. These gains enabled the company to rank as the world's largest capitalization in its sector, and the fifth largest on Wall Street. As shown in the table generated by Bloomberg, this is one of the biggest one-day valuation jumps in the history of American companies.
Nvidia shares have already posted gains of 109% since the start of 2023, and exploded by 25% on Wednesday after the market close. Investors are enthusiastic about Nvidia's forecasts for the coming months. The chipmaker is forecasting sales of $11 billion for the next quarter, 50% more than analysts were expecting.
Nvidia is one of our largest holdings in our Pratte North American Equity fund, and ended Thursday's session up 24%.
"With a capital reserve of $15 billion, combined with robust cash flow and forecasts well above consensus, Nvidia exploded 24% on Thursday. Growing demand from data centers, driven by a boom in generative AI and large language models, could push sales next quarter past 11 billion. The growing demand for semiconductors is due to the accelerated rejuvenation cycle of server farms to support the sharp rise in demand for processing power. This rebound was quite a surprise, as it's rare for a company of this size (mega cap) to record such a performance in just one day," explains Philippe Pratte.
Stock markets in brief
The start of the week was marked by investor fears over the debt ceiling agreement. The VIX index, which measures market volatility, rose 8% on Tuesday, testifying to the fear that has gripped the markets for several days now.
Buoyed by the technology sector, Wall Street ended last week on a high note, but there's no sign of a repeat. With the quarterly earnings season drawing to a close, investors were unable to focus at the start of the week on anything other than debt negotiations.
With no notable breakthrough, indices remained in negative territory on Wednesday, as analysts awaited the outcome of the talks. Then, the minutes of the Fed's latest decision added to the fears already present. Indeed, the minutes of the meeting held at the beginning of the month show that participants believe there will be a mild recession at the end of the year and beginning of 2024.
Christopher Waller, a member of the Fed's Board of Governors, announced on Wednesday that inflation remains too high for the time being and has made little progress towards the Fed's 2% target. Thus, it is still too early to determine what the Fed will do at its next meeting in mid-June.
"It's not yet clear," he said, "whether the Fed's policy rate is high enough to slow borrowing, spending and inflation. I don't support stopping rate hikes unless we get clear evidence that inflation is approaching our 2% target," Waller added. "But whether we should hike or skip at the June meeting will depend on how the data comes in over the next three weeks."
The document shows, however, that members were divided at the last meeting over a possible pause or further interest rate hike. But "several participants noted that if the economy moved in line with their current outlook, further policy tightening after this meeting might not be necessary".
The debt-ceiling deal seemed on the verge of conclusion on Thursday, which supported stock market indices on Thursday and Friday morning. The technology sector propelled the NASDAQ and S&P 500, helped by the explosion of Nvidia shares, which posted gains of 24%. This performance enabled the sector's major AI players to shine, such as AMD (+11.16%), Broadcaom (7.25%), TSMC (+12.00%), Microsoft (+3.85%) and Alphabet (+2.23%).
Indices continued to perform well on Friday, all opening higher as the NASDAQ and S&P 500 headed for another positive week.
Here is the average for the week of the three main indexes at 1 p.m. Friday.
And here's the average for the week for the TSX in Canada.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
This newsletter is intended to provide general market and security information and is not intended to address your specific needs. The views (including recommendations, if any) expressed in this newsletter are those of the author only and do not necessarily represent those of Pratte Asset Management and do not constitute investment advice for your specific needs.
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