U.S. stock markets (^IXIC, ^GSPC), except the Dow Jones Industrial Average (^DJI), saw Nvidia (NVDA)’s earnings numbers announced after the close of trading on Wednesday exceed earnings expectations for the first quarter. As a result, it continues to rise during the day.
Jeffrey Kleintop, chief global investment strategist and managing director at Charles Schwab, appears on The Morning Brief and discusses, among other things, President Biden’s new tariffs on Chinese imports and semiconductor sales to China. As international trade tensions rise over the ban, we discuss areas where impressive market performance is expected to extend beyond the technology sector and AI megatrends.
“It’s been a safe haven for growth in a global economy that’s struggled in recent quarters, but that may no longer be the case. I would argue that markets will perform better outside of some of the tech and AI darlings,” Kleintop said. “I got the European PMI data this morning and it was strong. Europe is actually coming out of the recession that it experienced last year, which means better growth in the more cyclical sectors.”
To learn more about Nvidia, check out Yahoo Finance’s exclusive interview with CEO Jensen Huang.
For expert insights and the latest market trends, click here to watch the full episode of Morning Brief.
This post was written by luke carberry morgan.
Video Transcript
I’m glad you came here.
So let’s talk about NVIDIA in the context of the broader market.
What does this growth say about the excitement surrounding AI and how big a driver it will be for the broader market in the future?
It’s not easy to find anything negative for the market in Nvidia’s earnings.
But we’ve found something that may become increasingly important to the market.
We know that AI is a big topic for the market and is getting a lot of attention, but so is trade tensions.
One element of Nvidia’s earnings report that separated it from the market.
The other bright spot has been Nvidia’s dope in data center revenue in China, which has accounted for 20-25% of data center revenue in recent quarters.
And, of course, this is the result of the US banning the sale of high-performance chips to China.
Tech giants are introducing alternative chips that don’t require special licenses from the United States.
However, NVIDIA’s CFO said on a conference call yesterday that China data center revenues are down significantly from levels before these new export restrictions were imposed, which would be a bigger issue for the chipmaker, but not just in the coming quarters as trade tensions continue to rise.
oh.
got it.
In other words, this is a manifestation of some of the larger threats that are outside of Nvidia’s control.
But the market is looking to NVIDIA as a safe place to move.
How and for how long will this continue?
It’s a safe haven for growth in a global economy that has struggled over the past few quarters.
But perhaps not anymore.
I would argue that we are seeing market performance expanding outside of the tech sector, outside of some of the AI darlings. We had PM I data out of Europe this morning and it was booming.
In fact, Europe is emerging from the recession experienced last year, which means that growth in more cyclical sectors will improve.
Indeed, the Prime Minister’s May survey showed very strong growth.
In fact, Germany is seeing the most activity in over a year.
So, this suggests that profit growth in Europe may actually outpace our profit growth in the second half of the year.
Analysts are predicting it now, and some states support it.
And that means broader performance just outside the U.S. technology sector as well, Jeffrey, when last night we heard the big news that the time has come.
But the reason I mention NVIDIA is because there were some rumors this morning about whether the company might be a better candidate for the Dow Jones Industrial Average in the future.
Do you have any opinions on that?
I don’t think so really. I mean, you know, indexes are important in the sense that they affect how we look at the market.
But the fact is that the Dow has adapted significantly over time in terms of the types of companies included in its index.
I look at broader indexes that have a lot of exposure to different sectors, like the S&P 500 for example.
Yeah, that’s what I look at and typically use that to compare with other markets around the world.
And interestingly, China has outperformed the S&P 500 so far this year.
This may surprise many investors.
We’ll all be here eventually.
Yesterday, we spoke with NVIDIA founder and CEO Jensen Huang about the robust demand for AI chips.
Listen here and I’d love to hear your response.
Meanwhile, copper demand increased throughout the quarter after Blackwell’s announcement.
So you know how much demand there is.
Every part of our data center is the most complex computer the world has ever built.
So it makes sense that almost everything would be constrained.
So the whole picture of demand that we’ve been seeing has been explained by NVIDIA and then by other companies that have added or joined the generative AI discussion one after the other.
So at some point, it feels like an expense that companies are making, at least in B to B relationships for these products and services.
It should dry out eventually.
right.
Yeah, we’re still in the early stages, but you know, if you look at the growth and spending of things like .com, which was a while ago, a lot of the new technologies that have come out over the last 20 years, companies are It took several years for it to really ramp up as we explored how to implement technology and solutions for it.
So I think it’s still in a very early stage.
If you look at the corporate cap X for information software and hardware, it’s still barely rising.
So I think there is a way forward here.
The real problem may be supply constraints, with TS MC, which makes chips for NVIDIA, struggling to produce enough chips to meet demand.
That may be the binding factor here rather than the corporate budget.
Jeffrey Kleintop.
Charles Schwab, Chief Global Investment Strategist and Managing Director;
Good to meet you, Jeff.
I mean, it excites me.
