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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Investors Cool on Nvidia as AI Fervour Wanes
Whisper it softly, but is some of the investor fervour around Nvidia cooling just a little? The chipmaker has been a phenomenon, riding the surging demand for its artificial intelligence-empowering chips. The stock has jumped 180 per cent this year, fuelling about a fifth of the S&P 500’s gains in the process.
Slowing Trading Volume and Share Price
But trading volume in Nvidia has slowed in recent months with the average number of shares changing hands down 40 per cent from the first half of the year. And over the past six months, its shares are up just 3 per cent compared with more than 11 per cent for the S&P 500. In the last month, Nvidia shares have actually fallen about 9 per cent.
Experts Weigh In
“There’s a tension between momentum, which is very powerful in the early stages of technology adoption, and valuation,” says Vanguard chief economist Joe Davis, whose team has mapped the impact of tech adoptions since the Industrial Revolution and who warned recently the market may have got ahead of itself given the early stage of AI development. “If I had a longer horizon, I think being a smart investor would be saying, ‘OK, who’s going to utilise the technology? Who’s going to develop the technology?’”
Infrastructure and AI-Enabled Revenues
So far, the companies that have done best in stock market terms are those such as Nvidia, which play a role akin to the sellers of shovels to speculators in a gold rush, facilitating the boom. Investors have also already backed energy utilities, with nuclear providers Vistra and Constellation Energy both in the top 10 S&P 500 performers this year. In a sign of surging demand for power for AI-related uses, Microsoft in September signed a 20-year deal with Constellation that involves the reopening of the Three Mile Island nuclear plant.
Conclusion
As investors consider how the developments in AI will play out in 2025, they will need to think carefully about which companies will benefit from the use of AI. While Nvidia and other AI infrastructure companies have done well so far, the next phase of investment may focus on AI-enabled revenues and productivity gains.
FAQs
Q: What is the current state of investor sentiment around Nvidia?
A: Investor sentiment around Nvidia has cooled slightly, with trading volume slowing and share price falling about 9 per cent in the last month.
Q: What are the potential winners in the next phase of AI investment?
A: Potential winners include software and IT services companies that can generate revenue from their AI-enabled products, such as Datadog, MongoDB, and Snowflake.
Q: What is the long-term potential of AI in the stock market?
A: The long-term potential of AI in the stock market is significant, with experts predicting a rally of about 10 per cent in the S&P 500 next year.
