The stock market is always intriguing, but this week has been particularly extraordinary as Nvidia reported yet another blowout quarter. Here are three key takeaways for investors, along with a peek at what's to come in the following week.
S&P 500 Continues to Soar
The S&P 500 has comfortably crossed the 5000 level and is on track to close above it for the third consecutive week. By the end of late trading on Friday, the index had surged by approximately 1.7% for the week, easily recovering from the previous week's 0.4% dip.
Almost 390 stocks within the S&P 500 saw a positive trend for the week, indicating the index's remarkable performance over the past 17 weeks, boasting an impressive 7% growth since the beginning of the year.
Nvidia's Remarkable Impact
When it comes to driving the market, Nvidia has been stealing the spotlight with its groundbreaking contributions to artificial intelligence. The company's semiconductor solutions power AI models, such as ChatGPT and its competitors, making Nvidia a pivotal player in this rapidly evolving space.
Following its stellar sales and earnings report on Wednesday, Nvidia's stock witnessed a sharp uptick, closing in on a remarkable 9% surge by the end of Friday's trading session. This surge added nearly $200 billion to its market capitalization, accounting for 25% of the total market gain. At certain points on Friday, Nvidia's market value surpassed $2 trillion for the first time.
Despite these impressive gains, Nvidia's stock is trading at a lower valuation compared to before its fiscal first-quarter results were unveiled in May 2023. Prior to this turning point, where the stock soared by 25%, it was trading at around 60 times the expected earnings for the next 12 months. Now, it commands a more modest valuation of approximately 33 times earnings.
Interestingly, as Nvidia's market cap surged by $1.2 trillion, its stock witnessed a drop in valuation, underlining the heightened expectations surrounding the company's future earnings potential.
Ripple Effect on AI-Related Stocks
Nvidia's success story has not gone unnoticed, with several other AI-related stocks witnessing positive momentum amid the market euphoria. Companies like Arm Holdings, Advanced Micro Devices, and Super Micro Computer saw their shares rise by 4%, 1%, and 9% respectively by midday trading on Friday.
Data-Center Equipment Suppliers Shine
Shares of data-center equipment suppliers Schneider Electric, Eaton, Vertiv, and nVent Electric rose throughout the week, with an average gain of 2.7%.
Electric Vehicle Stock Woes
Electric vehicle stocks didn't fare as well this week. Rivian Automotive and Lucid issued lower production forecasts, signaling weaker demand than expected by Wall Street. Rivian aims to produce about 57,000 vehicles in 2024, whereas analysts estimated closer to 66,000. Lucid plans to manufacture 9,000 vehicles in 2024, falling short of the anticipated 12,000. Consequently, Rivian and Lucid shares dropped approximately 35% and 18% for the week. Polestar Automotive and NIO also saw declines of 25% and 11%, respectively. Tesla shares took a 3% hit.
The lesson here? The focus should shift towards more affordable EVs like those from Tesla, rather than luxury models.
Upcoming Events
In the coming week, earnings reports from Nvidia will not be in the spotlight. Instead, attention may turn to the strength of the economy, consumer spending, and inflation. Earnings from Macy's and Lowe's are anticipated on Tuesday, accompanied by a consumer confidence reading from the Conference Board. Additionally, the personal consumption expenditures price index, a key inflation metric, will be released on Thursday.
Robust consumer spending and progress in inflation control by the Federal Reserve could potentially fuel another week of gains for the S&P 500 index.
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