Nvidia CEO Jensen Huang presents the Nvidia Blackwell platform at a pre-COMPUTEX Forum event on June 2, 2024 in Taipei, Taiwan.
Ann Wang | Reuters
A day after the U.S. Federal Reserve cut its benchmark interest rate for the first time since 2020, investors flocked to technology stocks with one of the biggest gains of the year.
Led by a 7.4% increase in the share price of Tesla and an increase of 4% in NVIDIAThe Nasdaq rose 2.5% on Thursday, its fourth-strongest rally of 2024. The biggest gain of the year for the tech-heavy index was a 3% rise on Feb. 22.
Lower interest rates tend to benefit technology stocks as lower borrowing costs and bond yields make risky bets more attractive. In addition to the Fed's half-percentage-point rate cut, the Federal Open Market Committee's “dot plot” indicated further cuts of 50 basis points by year-end, ultimately falling two percentage points beyond Wednesday's measure.
While the Nasdaq has risen steadily this year thanks to Nvidia and the craze for artificial intelligence, Thursday's rally pushed the benchmark to its highest level since mid-July. The Nasdaq peaked at 18,647.45 on July 10 and is now just 3.5% below that level, closing at 18,013.98.
Nvidia, whose processors are powering the generative AI boom and services like OpenAI's ChatGPT, rose 4% to $117.87 on Thursday. Shares are up about 138% for the year after more than tripling in 2023, but are still 13% below their all-time high in June.
Nvidia is targeting a relatively small customer group – namely Microsoft, Meta, alphabet, Amazon, oracle and OpenAI – for disproportionate revenue because these companies either develop large language models, host large AI workloads, or do both. Any sign of slowing demand is cause for concern for Nvidia stock.
However, lower interest rates are seen as another potential boon.
Other chip manufacturers Advanced micro devices And Broadcom AMD also rose sharply on Thursday, gaining 5.7% and 3.9%, respectively. AMD is trying to challenge Nvidia in the AI market, but it is far behind and has some skeptics on Wall Street. The stock is only up about 6% this year.
AMD CEO Lisa Su told CNBC's Jim Cramer on Wednesday that AI is a very long-term project and we are still in the early stages.
“Let's not be impatient. Technology trends evolve over years, not months,” Su said. “We've only been in this, let's call it ChatGPT world, for about 18 months. We're all still learning. It's fun. We all use it.”
Su said artificial intelligence will penetrate “all aspects of our lives,” including education and drug development.
“The beauty of the whole thing is that you need the computer technology, and that’s exactly what we do,” Su said.
Tesla was the biggest gainer among mega-cap tech companies on Thursday, rising 7.4%. The electric car maker has been relatively sluggish for the year, losing nearly 2% while the Nasdaq has gained 20%. But Tesla has risen 72% since its yearly low in April.
Among the other top tech companies Apple And Meta also closed with big gains, each up nearly 4%.
REGARD: Cramer's interview with AMD CEO Lisa Su
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