Nasdaq Outperforms as Nvidia's AI-Driven Forecast Reignites Tech Rally

The technology-heavy Nasdaq outperformed peers at the close of trade on Thursday after chip maker Nvidia's bumper revenue forecast reaffirmed the strength of the AI boom and fuelled gains in technology stocks.

Nvidia shares jumped 8.7% after the chip company's robust forecast met lofty investor expectations, bolstering the view that the tech rally still has room to run as companies at the heart of the AI buildout continue to deliver impressive growth. "Nvidia's results show that the AI boom is not running out of demand ... while delivering that growth is becoming more expensive and capital-intensive," said Lale Akoner, global market strategist at eToro.

Nvidia's Forecast Exceeds Expectations

Morgan Stanley said in a note on Thursday that Nvidia's forecast for revenue growth of 70% next year is well above Morgan Stanley's estimate for a 52% rise and that the consensus estimate is closer to 40%. "We would expect Nvidia to continue to knock down barriers to higher growth," said analyst Joseph Moore in the note.

However, Nvidia has warned that shortages of memory components could curb the pace of the industry's growth, a reminder that supply chain constraints remain a key risk to the AI trade.

Market Performance

The S&P 500 closed 55.29 points, or 0.72%, higher at 7,730.99, and the Nasdaq Composite gained 411.16 points, or 1.57%, to 26,541.35. The Dow Jones Industrial Average rose 105.56 points, or 0.20%, to 53,569.44.

US chip-linked stocks broadly rose, with the semiconductor index notching a 2.3% gain. The S&P 500 Information Technology sector rose 3.4%, making it the best gainer among the S&P 500's 11 constituents, which were mostly in the red.

The Party Is Not for Everyone

"While Nvidia's earnings beat and strong guidance restarted the party, it's apparent that not all sectors of the market were invited," said Charlie Ripley, senior investment strategist at Allianz Investment Management. "Market headwinds continue to be a factor as higher interest rates, geopolitical tensions, and global trade, among other things, are playing a role in the weakness seen across other sectors."

Energy stocks, for example, felt the pinch from rising oil prices. Brent crude prices jumped by more than US$2 per barrel on Thursday, after a Wall Street Journal report said US President Donald Trump is not interested in returning to the terms of a memorandum of understanding reached with Iran in June.

Software Stocks Join the Rally

Salesforce surged 22.6% after raising annual revenue and profit forecasts, and rolling out a new plug-in integrated with Anthropic's Claude AI models. CrowdStrike climbed 20.5% after the cybersecurity software provider raised its annual revenue forecast and topped second-quarter earnings estimates.

The Salesforce and CrowdStrike reports calmed worries that advanced AI tools could upend the traditional software industry, boosting investor appetite for beaten-down software stocks and narrowing the gap with semiconductors, which are seen as the primary beneficiaries of the AI boom. Shares of other software firms, including ServiceNow and Palo Alto Networks, also surged.

Moderna dropped 4.6% after unveiling a US$2 billion convertible bond sale, while HP fell almost 3% after shipments and margins of its PC unit declined in the third quarter.

Focus Shifts to Jackson Hole

With Nvidia results out, investor attention turns to Federal Reserve chair Kevin Warsh's first Jackson Hole address on Friday for hints on the central bank's stance on the latest inflation data and the US Treasury's efforts to tame yields.

"A common theme from Warsh has been his focus on the supply side of the economy, and we expect that to remain the focus," said Christopher Hodge, chief US economist for Natixis. "I highly doubt that Warsh will be too declarative in his assessments of what's to come, but it would not be surprising if he expressed some skepticism about previous policy assumptions and generally struck an anti-doctrinaire approach."

Inflation and the Fed

A hotter-than-expected Personal Consumption Expenditures reading on Wednesday muddied the policy outlook, dampening some of the optimism generated by a benign consumer inflation report earlier this month. Two Fed officials shared their ongoing concerns about the inflation outlook on Thursday, reiterating their stance on rate hikes to combat price pressures.

Meanwhile, the number of Americans seeking unemployment benefits for the first time fell for a second week, while the overall number slid to the lowest in a month, signalling a stable labour market.

Market Breadth

Declining issues outnumbered advancers by a 1.02-to-1 ratio on the New York Stock Exchange. There were 192 new highs and 82 new lows on the NYSE. On the Nasdaq, 2,570 stocks rose and 2,325 fell as advancing issues outnumbered decliners by a 1.11-to-1 ratio.

The S&P 500 posted 15 new 52-week highs and 8 new lows while the Nasdaq Composite recorded 73 new highs and 85 new lows. Volume on US exchanges was 14.9 billion shares, compared with the 160.3 billion average for the full session over the last 20 trading days.