Key Takeaways
\nNvidia was shut out of an AI and tech stock rally of its own making on Thursday; the chip maker’s earnings exceeded expectations by a hair, but reassured investors that AI demand in general remains strong. Morgan Stanley analyst Joseph Moore suggested in a note on Thursday that Nvidia’s growth forecast could underestimate the strength of demand for its chips. UBS analysts expect tech giants to sustain strong revenue growth into next year, and see potential for investors to grow even more bullish on their market-leading stocks. <\/p>\n
Nvidia’s earnings were great for AI stocks, just not Nvidia\u2019s.\n<\/p>\n
\u201cThe overall strength of the July quarter results may offer some reassurance for investors after signs of stalling momentum for the large-cap tech rally,\u201d wrote UBS analysts of Nvidia\u2019s earnings in a note on Thursday.\n<\/p>\n
That was evident on Thursday. The S&P 500 hit a fresh record high<\/a>, with some of the market\u2019s favorite AI stocks<\/a> among the strong performers, including Micron (MU<\/a>), GE Vernova (GEV<\/a>), Nvidia competitor Broadcom (AVGO<\/a>), and nuclear power providers Vistra (VST<\/a>) and Constellation Energy (CEG<\/a>). Major cloud providers Amazon (AMZN<\/a>), Alphabet (GOOG<\/a>) and Oracle (ORCL<\/a>) all rose more than 1%.\u00a0\n<\/p>\n Meanwhile, Nvidia (NVDA<\/a>) shares fell nearly 1% after the AI chip giant reported earnings that beat estimates<\/a>. The disconnect between Nvidia and the rest of the AI trade may boil down to expectations, according to Morgan Stanley analyst Joseph Moore.\n<\/p>\n “For the stock to sell off slightly after hours on these types of numbers certainly indicates that sentiment has largely caught up to the growth potential,” wrote Moore in a note on Thursday morning. “But outside of China geopolitics, this is a very clean beat and raise quarter,” he added.\n<\/p>\n Persistently Strong AI Demand <\/p>\n Enthusiasm about artificial intelligence has been the driving force behind much of the stock market\u2019s gains over the past three years. Tech giants like Microsoft (MSFT<\/a>), Amazon and Meta (META<\/a>) have seen their sales, stocks and spending on AI infrastructure soar amid surging demand for AI products and services.\u00a0\n<\/p>\n But the rally has repeatedly hit bumps in the road, as it did last week<\/a> when jitters about an AI bubble cropped up after OpenAI CEO Sam Altman questioned the AI rally\u2019s sustainability and an MIT study found the vast majority of companies have seen no material return on their AI investments.\u00a0\n<\/p>\n Nvidia\u2019s report on Wednesday, though, painted a picture of robust and growing AI demand. The company forecast sales would total about $54 billion in the third quarter, a more than $7 billion increase from Q2. That growth rate of about 15%\u2014robust on a year-over-year basis, let alone quarter-over-quarter\u2014doesn\u2019t include any sales to China<\/a>, which once accounted for about 20% of Nvidia\u2019s data center revenue, according to Moore.\n<\/p>\n Based on management\u2019s commentary and Morgan Stanley\u2019s market research, Nvidia\u2019s growth forecast \u201crepresent[s] undershipment of true demand,\u201d said Moore. He pointed to strong sales of Nvidia\u2019s Hopper architecture, launched in 2022 and superseded by the Blackwell system last year, as evidence of unmet demand. \u201cCompute shortages remain intense enough customers are still buying three year old Hoppers to serve some of that demand,\u201d Moore said.\u00a0<\/p>\n