Wednesday’s Blockbuster Profit Report Nvidia This underscores the importance of both markets and economies. For better or worse, artificial intelligence is the future.
Whether it’s personalized shopping, self-driving cars, or the widespread use of robots for healthcare, gaming, and finance, AI will become a factor in virtually everyone’s life.
Nvidia’s gargantuan first-quarter earnings are a reflection of the company’s $1 trillion market valuation and its closeness to an elite group of tech leaders with clear leadership positions on both Wall Street and Silicon Valley. helped quantify the phenomenon.
“AI is real, it’s not a fad. “Will the economy change course in the next three to six months? Probably not. Will the economy change in the next three to six years? Definitely, and in a very interesting way.”
Among the changes Blitz foresees are a decline in demand for foreign workers, a “point of sale” effect that allows machines to do coding and creative writing instead of humans, and what seems obvious now. and many other activities beyond.
Developing products such as OpenAI’s ChatGPT, a chatbot that talks to users, has helped us see the potential.
“It is difficult for me to overstate the value or impact of AI and my view that the next decade will be about a broader application of technology beyond what we have seen so far, such as computers and phones. There are significant advantages in this application,” Blitz said.
Individual effect so far
For Nvidia, the benefits are already clear.
as if Earnings of $1.09 a share and revenue of $7.19 billion were both well above Wall Street expectations, but not enough, with the company expecting revenue of $11 billion this quarter. This is mainly due to its leadership position in supplying AI chips. work.
Shares soared more than 26% around noon Thursday, taking the company’s market cap to over $950 billion.
However, the broader market reaction has been overwhelming.
The S&P 500 Semiconductor Index rose 11.4%, while the broader index NASDAQ Composite The gain was a more modest 1.7%.of S&P500 increased by about 0.9%, Dow Jones Industrial Average Shares fell more than 50 points as investors continued to worry about debt ceiling talks in Washington.
At the same time, fears of an economic slowdown persist, with Blitz still believing the U.S. is headed for recession despite his excitement about AI — and the skewed market reaction suggests that the benefits of the technology are slowing down. It is a reminder of the hierarchical economy that tends to spread.
“The spillovers from AI and the benefits that other parts of the economy will see are a multi-year, multi-decade process,” said Peter Bookver, chief investment officer at Bleakley Advisory Group. “Is this an incremental piece towards growth, or is it diverting spending elsewhere as other parts of the economy, except spending on travel, leisure and restaurants, don’t seem to be doing so well? ?”
Bookver noted that small-cap stocks, for example, have seen big losses on Thursday. Russell 2000 It fell about 0.8% in early afternoon trading.
‘A deep hole in the economy’
This happened even though these companies were supposed to benefit from the cost-saving aspects of AI, such as reduced labor costs. His Nvidia’s main competitor in the chip field, intel, was also panned, dropping 6.2% during the session. Quarterly tech profits fell 10.4% this week overall, but some of the biggest companies beat Wall Street’s downside expectations, according to FactSet.
“There are some serious holes in the economy that cannot be ignored,” Bookver said. “Once the AI boom subsides, people will notice a distinct slowdown in the underlying business trends of Microsoft, Google and Amazon, because we are all breathing the same economic air. ”
AI is also not a winner for everyone.
DataTrek Research surveyed nine large AI companies that entered the market through initial public offerings over the past three years and found that their combined valuations have fallen 74% from their debut levels.
Group includes UiPath, Pagaya Technologies and Exsiencia. The company’s stock price has rebounded by an average of 41% in 2023, while the group’s seven largest tech companies, including Nvidia, are up an average of 58%.
DataTrek co-founder Nicholas Collas said, “So far, big tech companies have collectively benefited the most from the AI generation story. When it comes to harnessing this disruptive technology, big tech This trend will continue, given the ability of companies to tap into a large competitive moat on a global scale.” “Gen AI may make America’s Big Tech even bigger and more organizationally important, rather than allowing start-ups to play the classic role of disruptive innovator.”
In fact, market veteran Art Cassin said that without the top seven stocks, the S&P 500 would likely abandon all of its 8% gains this year.
“Probably high tide will float all the boats,” UBS’s floor operations manager told CNBC’s “Squawk on the Street.” “This is a very selective stream, and I’m not ready to throw confetti yet.”