Nvidia Day: A Leap Year Celebration?
This leap year, it seems only a matter of time before someone suggests renaming Feb. 29 as Nvidia Day.
Industry Dominance and Investor Sentiment
At this point, Nvidia is a name inescapable to investors. Yet however important the artificial intelligence poster child is, the stock’s gains also reflect the state of investor sentiment more broadly. If that shifts, it could affect Nvidia’s ability to power a continuing rally in stocks.
A Global Powerhouse in AI
Nvidia stands tall as the source of the graphics processing units other companies use for their artificial intelligence software. With a market capitalization that rivals the size of Canada’s economy—one that doubled from $1 trillion to $2 trillion in eight months—Nvidia has shown that the biggest of big tech don’t just move the needle for the market, “they have become the needle.”
Magnificent Performance
The company’s blowout fourth-quarter was the latest in a string of earnings successes for the company, with sales more than tripling from the year-ago period. As Rosenberg Research founder and President David Rosenberg put it, “We are basically down to the Magnificent One—the company clearly is in a league of itself.”
Ominous Dependence on Big Tech Stocks
That—and the performance of the Magnificent Seven tech stocks more broadly—has made plenty of investors nervous that the gains in the S&P 500 are too dependent on a handful of stocks. Nvidia, Meta Platforms, and the weight-loss drug darling Eli Lilly are responsible for half of the S&P 500’s 2024 gains.
Market Insights by Nicholas Colas
Nicholas Colas, the co-founder of DataTrek Research, provides valuable insight into the current market trends. He argues that fluctuations in stock performance are normal and not a cause for alarm. According to Colas, market dynamics are such that most stocks struggle to consistently outperform over the years. Only a select few are consistently undervalued, driving overall market returns.
The Tech Sector’s Influence
Colas emphasizes the pivotal role of tech companies in delivering long-term gains to investors. Five tech giants – Apple, Microsoft, Amazon.com, Alphabet, and Tencent – have contributed significantly to equity gains globally over the past three decades. The challenge lies in identifying these winners early on, which explains the widespread popularity of index investing.
Apple Versus Nvidia
Despite Apple lagging behind this year compared to Nvidia, Colas attributes this to the bullish sentiment prevailing among investors. Apple’s stability during turbulent times contrasts with Nvidia’s appeal in a risk-embracing bull market. This dichotomy has widened recently as last year’s rally continues. The forecast suggests that Nvidia and bullish market sentiments may dominate in the short term.
Investor Confidence in Nvidia and Apple Since 2020
“The performance spread between Nvidia and Apple does a great job of capturing investor confidence since 2020,” noted Colas. “By this measure, investor confidence is running very high indeed. In fairness, Nvidia’s fundamentals are truly fantastic. But… Its recent performance spread versus Apple says everyone knows that.”
