There is no denying that the increasing acceptance of (something) has played a significant role in the market upswing since the beginning of last year. machine intelligence Despite the optimistic outlook, there are still worries about the persistent issue of inflation and its effects on the economy.
The Federal Reserve Bank has firmly stated that it will not start reducing interest rates until there is a significant improvement in the inflation rate. As a result, interest rates are still at their highest level in 22 years. However, the most recent data on inflation exceeded expectations, leading to optimism for a potential decrease in interest rates and causing a widespread surge in the market.
Given that situation, the individual responsible for designing the microchip Arm Holdings ( ARM 3.59% ) The semiconductor giant’s stock rose by 3.2%. Broadcom ( AVGO 5.35% ) increased by 4.9%, and a company that manufactures memory and storage chips Micron Technology is a company that specializes in the production of memory and storage solutions. ( MU 6.51% ) Increased by 6.5% by 1:06 p.m. Eastern Time on Thursday.
After investigating various sources such as regulatory filings, financial reports, and analysts’ assessments, there was limited company-specific news that contributed to the increase in the value of these AI stocks. The surge in the market today appears to be mainly influenced by the bettering economic conditions and the implications it holds for the future.
Picture credit: Getty Images.
Inflation that is persistent and unyielding.
The inflation report released by the U.S. Bureau of Labor Statistics yesterday brought positive news. Prices showed a decrease, which was welcomed by consumers who have been feeling the strain of high prices. The measure of inflation that tracks the average change in prices of goods and services bought by households. The consumer price index, which is a popular indicator of inflation, increased by 2.9% in July compared to the same month last year. Prices only went up by 0.2% from the previous month, showing the slowest growth rate since the beginning of 2021.
The monthly rate was as expected, but the annual comparison exceeded expectations. Economists had forecasted a 3% yearly increase in inflation and a 0.2% increase compared to the previous month. The “core” data, which excludes food and energy prices, showed a 3.2% rise from a year ago and a 0.2% increase from the previous month, meeting expectations.
The Federal Reserve is making efforts to meet its 2% inflation target. Despite this, an increasing number of economists are forecasting a potential 0.25% interest rate reduction by the Fed in September, with some experts proposing a larger 0.5% rate cut.
Even though there is advancement, there are still areas of concern. The cost of shelter, mainly driven by rental fees, played a significant role in the rise in expenses, with consumers still facing the impact of expensive housing costs.
Since March 2022, interest rates have been increasing, and both investors and businesses are hoping for the first of several rate reductions. This is expected to stimulate more spending by businesses and consumers, leading to economic growth. As inflation has seen its smallest rise in over three years, Wall Street is becoming more optimistic that rate cuts will start sooner rather than later.
The sole additional factor
The deadline for hedge funds to submit their quarterly portfolio disclosures to the SEC was yesterday. It is commonly observed that when prominent investors make adjustments to their investments, it can impact stock prices.
In the latest report for the second quarter, Paul Singer’s Elliott Investment Management revealed through an official document that they had invested in Arm Holdings, although it was a minor investment. The wealthy investor acquired around 150,000 Arm shares, which were worth $24.5 million. This investment represents merely 0.24% of Elliott’s total holdings, indicating that it had a minimal impact on their overall portfolio.
AI has been a hot topic in the news over the past year, primarily due to significant investments made by large cloud providers and tech giants looking to capitalize on the technology. While some companies have been hesitant to invest in this emerging and still unproven technology, especially with rising borrowing expenses, more may be inclined to do so as interest rates decrease. generative AI demonstrates its worth.
The high valuation of companies like Micron Technology, Arm Holdings, and Broadcom is largely due to the enthusiasm surrounding the innovative technology they are working on. These companies are currently trading at very high multiples of their earnings, with P/E ratios of 332, 71, and 52 respectively. However, it’s important to note that the P/E ratio may not be the most effective metric for evaluating the value of fast-growing stocks. The ratio of the price to earnings to the growth rate, known as the PEG ratio. When analyzing a stock with potential for significant growth, the valuation shows ratios of 0.1, 0.2, and 0.8, with values below 1 suggesting that the stock is undervalued.
This indicates that for investors who have a suitable investment horizon and are comfortable with fluctuations in the market, these AI stocks could be worth considering.
