Phone with Nvidia logo on screen with computer motherboard
Nvidia has grown so large and has such a high weighting in the S&P 500 that a significant jump in its shares mechanically lifts the entire market © Reuters

Stock indices on three continents hit all-time highs on Thursday after a bumper earnings report from Nvidia sparked a powerful market rally and boosted shares of other technology companies.

Shares in the chipmaker closed 16.4 per cent higher on Thursday after the quarterly results and new forecasts it published on Wednesday evening blew past analyst expectations.

The S&P 500, Wall Street’s benchmark gauge, closed up 2.1 per cent, marking its biggest daily gain since January 2023 and surpassing last week’s record high. The technology-heavy Nasdaq Composite added almost 3 per cent, closing out its best day in more than a year and hitting its own record.

The exuberant reaction to Nvidia’s earnings rippled out into other markets, with the Stoxx Europe 600, Japan’s Nikkei 225 and the FTSE All-World index all hitting record highs.

The latest jump in Nvidia shares added a record-setting $277bn to the company’s market capitalisation, and brought its gains for the year to date to $740bn. The move means Nvidia has leapfrogged Amazon and Google parent Alphabet to become the third-most valuable US-listed company after Microsoft and Apple.

Nvidia has grown so large and has such a high weighting in the S&P 500 that such a significant jump automatically lifts the entire market. It also reinvigorated investor enthusiasm about the potential of artificial intelligence more broadly, with Nvidia chief Jensen Huang declaring on Wednesday that “demand is surging worldwide” as generative AI hits a “tipping point”.

Bar chart of Biggest one-day increases in market capitalisation, $bn, for listed US stocks showing Nvidia sets record for one-day jump in stock market valuation

A previous blowout report by Nvidia last May had been a critical factor in kick-starting investor enthusiasm about AI. Vishal Vivek, a strategist on Citi’s equity trading desk, said that by the end of last year “there were some worries about [that] enthusiasm petering out. What this shows is the AI theme is alive and kicking . . . that’s what the market will take as a key takeaway.”

Line chart of Market capitalisation, $tn, of Wall Street's 'Magnificent Seven' showing Nvidia becomes the latest US-listed company to reach a $2tn valuation

Nvidia’s market impact — it has been directly responsible for more than a quarter of the S&P’s year-to-date growth — has become so great that some investors and analysts were anticipating Wednesday’s financial report as a marketwide risk similar to the release of inflation data. 

Analysis by Citi earlier showed that traders in options markets were treating Thursday’s trading session as the joint largest “risk event” before next month’s Federal Reserve policy meeting.

Charlie McElligott, Nomura managing director of cross-asset strategy, said Nvidia’s “halo effect has almost single-handedly held up” the US stock market in recent months.

The results overshadowed Wednesday’s release of the minutes from the Fed’s latest meeting, which reaffirmed that officials had been cautious in January about cutting rates too quickly.

The narrow leadership of the recent market rally has sparked concerns in some quarters about excessive exuberance, particularly considering economic growth is expected to slow in the year ahead and inflation in the US has been showing signs of rebounding.

Nvidia’s revenue forecasts have risen so rapidly that its valuation is not at historically high levels when looked at on a price to forward earnings ratio, but a string of investors and analysts have cautioned that some stocks and indices are approaching “bubble” territory.

Two investors highlighted the rally in Super Micro Computer, a Nasdaq-listed maker of server equipment whose share price has risen 225 per cent so far this year on the back of AI enthusiasm.

The company announced a $1.5bn convertible bond deal on Wednesday afternoon, offering an interest rate of between 0 per cent and 0.5 per cent. 

Ted Mortonson, a tech strategist at Baird, said: “There is a dislocation between valuations versus fundamentals [in some areas]. That happened in 2000. The market might as well be renamed from Nasdaq to DraftKings — it’s a trading casino.”

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