US stock index futures stormed higher overnight following the release of Nvidia’s quarterly earnings report after last night’s close. The chip designer at the vanguard of the development of Artificial General Intelligence (AGI) delivered a set of exceptional results. The world’s most valuable corporation by market capitalisation easily beat revenue and earnings forecasts. In addition, its guidance for the current quarter came in far above expectations.
There was even more upbeat news when CEO Jensen Huang said that demand for the firm’s Blackwell chips was “Off the charts”. Nvidia’s stock price surged 6% in the immediate aftermath of the update and has held these gains in early trade this morning.
Source: TN Trader
The news has also helped revive confidence in the broader AGI trade, with significant rallies in Advanced Micro Devices, Super Micro Computer, Intel and the Taiwan Semiconductor Manufacturing Company. Palantir also bounced off recent lows following a torrid period for its stock price since the start of this month.
So, Nvidia has sounded the all-clear? Perhaps, but maybe not. Let’s not forget that even after today’s rally, Nvidia is around 8% from its recent high at the beginning of November.
If today’s rally has legs and enough buyers come in to propel Nvidia to fresh all-time highs, then that would be a strong vote of confidence, not just in Nvidia, but the whole AGI trade. But it’s also fair to say that there are growing concerns about the scale of investment in AGI, given the lack of revenues, let alone profits, to date.
Certainly, the cash burn over at ChatGPT owner, OpenAI, is a thing to behold. It projects a spend of $8.5 billion in 2025, and a cumulative cash burn of $115 billion through to 2029. And while there’s little doubt that the ‘picks and shovels’ sellers like Nvidia have significant earnings, the feeling is that many of its customers may not be around in a few years' time.
As with ‘Dot Com’, many AGI-adjacent companies will fail to make it, and will end up going bust, leaving nothing but huge, smouldering craters of debt behind them. Certainly, the cost of insurance contracts on CoreWeave’s debt is rising. That’s not to say that we’re about to see the end of the world as we know it. And the stock market rally may well have further to run. But investors should take care, consider valuations and be far more discerning than they have been to date.
