Tech Stocks Soar as Fed Rate Cut Boosts Nvidia and Tesla

Tesla, Nvidia lead tech-heavy Nasdaq to one of best days of 2024 after Fed rate cut

Nvidia CEO Jensen Huang presents the Nvidia Blackwell platform at an event ahead of the COMPUTEX Forum, in Taipei, Taiwan, on June 2, 2024. Investors poured into tech stocks at one of the fastest clips of the year a day after the Federal Reserve cut its benchmark interest rate for the first time since 2020. Led by a 7.4% gain in shares of Tesla and a 4% jump in Nvidia, the Nasdaq rose 2.5% on Thursday, its fourth-sharpest rally of 2024. The biggest gain of the year for the tech-heavy index was a 3% increase on Feb. 22. Lower interest rates tend to benefit tech stocks, because reduced borrowing costs and bond yields make risky bets more attractive. In addition to the central bank's half-point reduction, the Federal Open Market Committee indicated through its "dot plot" the equivalent of 50 more basis points of cuts by the end of the year, eventually coming down by 2 percentage points beyond Wednesday's move. While the Nasdaq has been on a steady rise this year, powered by Nvidia and the enthusiasm around artificial intelligence, Thursday's rally pushed the benchmark to its highest since mid-July. The Nasdaq peaked at 18,647.45 on July 10, and it's now just 3.5% shy of that level, closing at 18,013.98. Nvidia, whose processors are powering the generative AI boom and services like OpenAI's ChatGPT, gained 4% on Thursday to $117.87. The shares are up about 138% for the year after more than tripling in 2023, though they're still 13% below their all-time high reached in June. Nvidia counts on a relatively small group of customers -- namely Microsoft, Meta, Alphabet, Amazon, Oracle and OpenAI -- for an outsized amount of revenue because those are the companies either developing large language models, hosting big AI workloads or doing both. Any sign of slackening demand creates concern around Nvidia's stock. But lower rates are seen as another potential boon. Fellow chipmakers Advanced Micro Devices and Broadcom also rallied big on Thursday, gaining 5.7% and 3.9%, respectively. AMD is trying to challenge Nvidia in the AI market, but it's 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 game, and we're at the early stages. "Let's not be impatient. Tech trends are meant to play out over years, not over months," Su said. "We've only been in this, let's call it, ChatGPT world for maybe like 18 months. We're all learning. It's fun. We all use it." Su said AI is going to make its way into "all aspects of our lives," including education and drug development. "The beauty of all this is you need the computing, and that's what we do," Su said. Tesla was the biggest gainer among tech's megacap companies on Thursday, gaining 7.4%. The electric car maker has been a relative laggard for the year, down almost 2%, compared to the Nasdaq's 20% gain. However, Tesla is up 72% from its low for the year in April.

Why Nvidia Stock Jumped After the Big Fed Rate Cut | The Motley Fool

CEO Jensen Huang says the scale to grow AI from here will be exponential. Yesterday, the Federal Reserve delivered on the start of what looks likely to become a long-awaited interest rate cutting cycle. Stocks are generally rising in the aftermath as less expensive capital can help drive business growth. One of those stocks gaining ground Thursday morning was artificial intelligence (AI) chip leader Nvidia (NVDA 4.94%). As of 11:40 a.m. ET, Nvidia shares were up by 5.3%. But it wasn't just the Fed rate cut that had investors pouring into Nvidia stock today. CEO Jensen Huang also just spoke on stage with Salesforce CEO Marc Benioff at the Dreamforce annual technology gathering in San Francisco hosted by Salesforce. He noted that the AI movement is transitioning from an industry of tools to an industry of skills. Huang called the opportunity from here "gigantic." His comments gave investors reason to believe that the huge run in Nvidia shares isn't over. Even with it well off its record level, Nvidia stock is still higher by over 140% year to date. Last week, after a meeting at the White House between top tech leaders and the Biden administration, Huang told reporters that a new industrial revolution is beginning. His excitement for what's to come showed at Dreamforce. He told Benioff he was there, "Helping to celebrate the beginning of the enterprise AI era." "This is how industries are built," he continued. "We're going to bring a level of automation capability that the world's never seen." Huang called it an extraordinary time in AI development with the scale from here being "exponential." He's already proven that Nvidia is the leader in providing the tools needed for AI growth. Now investors are starting to believe that another round of growth will come from Huang's vision for Nvidia to provide the autonomous AI-powered agents that power the needed skills.

Nvidia Stock Is Surging Today -- Time to Invest in the Artificial Intelligence (AI) Leader? | The Motley Fool

The Fed announced yesterday that it would be cutting interest rates by 50 basis points -- coming in higher than the 25-basis-point cut that many investors and analysts had anticipated. While the initial reaction to the rate cut didn't spur gains for the broader market, investors quickly became more bullish after weighing the move from the central banking authority. Investors have been eagerly awaiting a pivot to rate cuts as a potential bullish catalyst for the stock market and growth stocks in particular. After getting the chance to soak up some additional commentary on the economic outlook, investors are seeming more confident that inflation is under control and that the economy will avoid a recession in the near term. If the economy stays relatively healthy and avoids contraction, the Fed's shift to rate cutting could help pave the way for a new bull rally that spurs big gains for Nvidia stock. Of course, there's still significant uncertainty on that front, and additional risk factors including geopolitical tensions could inject new bearish sentiment despite the rate cut. But while investors shouldn't take the rate policy pivot as a clear indicator that Nvidia will continue to surge, the business is firing on all cylinders and continues to look like a worthwhile artificial intelligence (AI) stock for long-term investors. In addition to strong demand from hyperscale cloud companies and other large enterprises, Nvidia will likely see rising demand from government customers. The company has highlighted the importance of having "sovereign AI" as a key national priority for governments around the world, and spending from public sector customers is likely still in early stages of ramping up. Nvidia also has major new product releases set to hit in the fourth quarter. The first of the company's Blackwell processors are expected provide major performance and power-consumption advantages compared to the company's current top-of-the line H200 processors. With the release, customers will likely be able to get a dramatic improvement in the amount of processing power they're getting per dollar. But Nvidia will also be able to command a pretty penny with its next-gen processors thanks to the performance leaps that are expected to be delivered. The Blackwell processors could help boost margins once released -- or the company could price the new hardware aggressively to stamp out opportunities for competitors. So while there's uncertainty about what moves the broader market will make in the near term, Nvidia's competitive positioning in AI continues to look very strong and opens the door for strong returns.