Nvidia's Stock Shines Bright Amidst a Dimmer Broader Market Outlook
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The S&P 500 index has surged approximately 15% in 2024, reaching 31 new peaks. The major contributor to these returns is the so-called Magnificent Seven tech stocks, which have experienced rapid growth due to investors' investments in the burgeoning artificial intelligence sector.
However, beyond this elite group of stocks, the market appears less promising. The S&P 500 equal-weighted index, which treats every stock equally, has risen only 4% this year.
The information technology and communication services sectors of the index have seen growth of around 29% and 24%, respectively. The other sectors of the S&P 500 have only managed single-digit growth, except for real estate, which has dropped this year.
Leading the market's record-breaking returns is Nvidia. This week, Nvidia surpassed Microsoft as the world's largest publicly-listed company. Nvidia's shares have risen by 164% this year.
Nvidia's shares have been on a prolonged upward streak for the past year and a half. Nvidia's chips are renowned for their ability to create the processors that drive artificial intelligence systems, including generative AI, which powers OpenAI's ChatGPT, a technology capable of generating text, images, and other media.
Will Nvidia's exceptional gains persist, and what does its staggering market cap imply for the ongoing stock rally?
Interview with Christopher Barto, senior investment analyst at Fort Pitt Capital Group, was conducted for Before the Bell. This conversation has been edited for brevity and clarity.
Before the Bell: Aren't you worried that the stock market's gains aren't balanced, and most of it is concentrated in the big tech Magnificent Seven stocks, particularly Nvidia?
I wouldn't call it worrying. It's rather intriguing.
Excluding the (Magnificent Seven's) earnings from the first quarter, growth actually declined by 2% year-over-year. Hence, the majority of the market is struggling.
There are some positive aspects. Several other semiconductor equipment companies are doing well and could offer potential buying opportunities.
Do you believe investors are overly dependent on Nvidia and their optimism that its stock will keep climbing?
Perhaps we can compare this to Apple a year or two ago. At that time, Apple was the world's largest company, and every day, it was, "the market is dependent on Apple." Then, you notice a shift a year and a half later, or even less, to Nvidia. Now, everyone says, "the market depends on Nvidia's earnings." As time passes, you will notice a shift in market-cap weighting.
You can see this shift in market-cap weighted indices over time, which is mainly driven by economic profit. Therefore, I don't think investors should worry that Nvidia is becoming overly concentrated.
Will Nvidia's astonishing streak continue?
I don't have a definitive answer to that. However, if you want exposure to artificial intelligence and long-term trends, you'll want to own some of the mega-cap companies like Google, Amazon, Microsoft, and Meta. These companies are investing in the graphics processing units that Nvidia makes, servers, and data centers. Since they have the means to reduce capital spending at any moment to enhance their free cash flow, these companies have the capacity to afford Nvidia's GPUs at a large scale.
(Most) of Nvidia's revenue comes from Meta, Google, and Amazon. These companies are making efforts to stay ahead of AI demand, and they are the kinds of companies that could potentially purchase Nvidia's GPUs at such a scale.
Mortgage Rates Have Fallen to Their Lowest Level in Nearly Three Months
Mortgage rates dropped this week to their lowest level since early April, easing pressure on the unaffordable housing market, according to my colleague Bryan Mena.
The standard 30-year fixed-rate mortgage averaged 6.87% in the week ending June 20, as reported by mortgage financing giant Freddie Mac on Thursday. This is a decrease from last week's 6.95% average and marks the third consecutive weekly decline. Rates have dropped from a 2024 high of 7.22%.
“Mortgage rates fell for the third consecutive week following indications of cooling inflation and market expectations of future Federal Reserve rate cuts,” said Sam Khater, Freddie Mac's chief economist, in a statement. “These lower mortgage rates, combined with the gradual improvement in housing supply, bodes well for the housing market.”
Despite mortgage rates being higher than anything seen in the decade before 2022, when the Federal Reserve began to raise interest rates to combat inflation, they are expected to ease this year. However, it is not anticipated that the average mortgage rate will drop below 6% this year.
Earlier this month, Fed officials predicted only one interest rate cut for this year, as compared to the three they forecast in March. The Fed does not set mortgage rates directly, but its actions do influence them through the benchmark 10-year US Treasury yield, which fluctuates in anticipation of the Fed's policy moves. Economists don't foresee the average mortgage rate falling below 6% this year.
Read more here.
He Attempted to Remove OpenAI's CEO. Now, He's Starting a 'Safe' Competitor
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This individual formerly tried to oust OpenAI's CEO. Now, he's starting a rival AI company focused on delivering what he considers a safe alternative to OpenAI's ChatGPT. The new venture, named Edge, plans to provide AI-generated content that is less likely to spread misinformation, hate speech, and other harmful or inappropriate content.
The departed co-founder of OpenAI, who recently stepped down from the AI powerhouse, unveiled his subsequent undertaking: a firm focusing on crafting secure, potent AI that could potentialize a formidable competitor to its former employer.
Ilya Sutskever disclosed plans for the fresh enterprise, affectionately dubbed Safe Superintelligence Inc., in a post on X Wednesday, according to my co-worker Clare Duffy.
"SSI represents our mission, our brand, and our entire product roadmap, as it is the sole focus. Our team, investors, and business operations are all in unison to achieve SSI," a post displayed on the company's site reveals. "We're aiming to enhance capabilities as swiftly as possible while ensuring our safety always takes priority. This allows us to grow untroubled."
This revelation surfaces amidst agitation in the tech sector and beyond over AI progressing at a faster pace than safety and responsible usage research, as well as a lack of oversight that has left tech firms relatively unchecked to establish their own safety guidelines.
Sutskever is hailed as one of the trailblazers of the AI renaissance. As a scholar, he was part of a machine learning lab under Geoffrey Hinton, the "Father of AI," where they developed an AI startup that was eventually acquired by Google. Sutskever subsequently joined Google's AI research team, before contributing to the creation of the chatterbot creators.
Find out more here.
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In the context of investing, Christopher Barto, a senior investment analyst at Fort Pitt Capital Group, suggested that while some may be concerned about the market's reliance on big tech stocks like Nvidia, there are potential opportunities in other semiconductor equipment companies. He also mentioned that investors shouldn't worry about Nvidia becoming overly concentrated in the market.
In the broader business world, the standard 30-year fixed-rate mortgage dropped this week, offering potential buying opportunities for those interested in the housing market. The decrease in mortgage rates, coupled with the improvement in housing supply, could bode well for the real estate sector.
