Nvidia shares surged by 8.15% today, driven by a trio of positive developments: a cooler-than-anticipated inflation report released this morning, a well-received presentation at a Goldman Sachs conference, and indications that the federal government may permit the export of its chips to Saudi Arabia. Consequently, the stock concluded the day with an 8% increase.
The inflation report sparked a rally among chip stocks broadly, with the iShares Semiconductor ETF climbing 4.6%, and the Nasdaq Composite gaining 2.2%.
A decline in interest rates is favorable for Nvidia
Initially, investors were uncertain whether the Consumer Price Index (CPI) report, which showed just a 2.5% increase in inflation year-over-year for August, signified good news for stocks. However, by the afternoon, the Nasdaq was on the rise, led by Nvidia.
The Federal Reserve is anticipated to reduce interest rates next week, though there is uncertainty about whether the cut will be 25 or 50 basis points. Ideally, interest rates will decrease while the economy remains robust or strengthens further. This scenario would be optimal for Nvidia, as lower rates enhance the value of growth stocks and could incentivize borrowing for investments in artificial intelligence (AI) infrastructure, leading to increased spending on Nvidia components.
During his speech at Goldman Sachs’ Communacopia conference, Nvidia CEO Jensen Huang highlighted the company’s technological advancements and the future of generative AI. He emphasized Nvidia’s strengths, including its software libraries for applications such as autonomous driving and climate technology. He commented, “The demand is so significant that the delivery of our components, technology, infrastructure, and software is emotionally impactful for people because it directly influences their revenue and competitiveness.”
Additionally, a report from Semafor suggests that the federal government is contemplating allowing Nvidia to export advanced chips to Saudi Arabia for training sophisticated AI models. While Saudi Arabia may not represent a massive market, easing export restrictions would benefit Nvidia and potentially open doors to other markets.
Will Nvidia continue to rise?
The company appears to be gaining momentum, as falling interest rates will bolster investment and valuation. Nvidia is also set to launch the Blackwell platform in the fourth quarter, and its major clients, including technology giants like Microsoft, Meta Platforms, and Alphabet, have all prioritized investing in AI infrastructure.
Even after today’s gains, Nvidia’s stock remains 17% below its peak in June, suggesting further potential for growth. The stock continues to be a promising candidate for outperformance, despite its significant appreciation over the last two years.
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