NVIDIA's brilliant performance in 2023 seems to have come to an end this month. The semiconductor giant's market value has evaporated by more than $200 billion since the end of August, and its stock price has been fully affected by the "September effect." Since August 31, Intel’s stock price has fallen by nearly 17%, and its total market value has evaporated by US$205.9 billion. Rising concerns among traders that the Federal Reserve will keep interest rates higher for longer to curb inflation have weighed on stocks in recent weeks.
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Nvidia also appears to have fallen victim to the "September effect," a phenomenon in which the stock market tends to underperform in the ninth month of the year.
The S&P 500 fell an average of 0.7% in September, and this year's losses are consistent with that trend, with the benchmark index down nearly 4% so far in September, according to Bank of America.
Despite Nvidia's poor performance in September, it remains one of the best-performing stocks in 2023, with shares up 181% so far this year.
Analysts say the hugely valuable tech giant is particularly benefiting from surging interest in artificial intelligence because it commands 95% of the market for graphics processing units (GPUs), on which bots such as ChatGPT run.
Nvidia became a trillion-dollar company for the first time this year, and its stock performance has been boosted by the company's consecutive blowout quarterly earnings reports this year.
However, expectations that the Federal Reserve will keep interest rates high for a long time and the rise in U.S. bond yields have dampened this year's boom in artificial intelligence trading. The Federal Reserve said this week it expects to keep interest rates high for at least three years and possibly longer. Nvidia, Meta, Microsoft and other stocks that were boosted by the AI boom in the early stage fell one after another in September. The Nasdaq index fell nearly 6% this month.
Wedbush Securities' Dan Ives wrote on Tuesday that while the tech sector's recent gains have slowed, its gains will continue into 2024 as a boom in artificial intelligence spending helps the sector weather policy concerns and rising bond yields.
"We believe that the guidance Nvidia released globally last month illustrates that there will be a wave of artificial intelligence-driven spending in the technology industry in the next few years," he said. He expects the growth in the technology industry to continue for 12 to 18 months.
This year's advances in artificial intelligence have given rise to the "Magnificent Seven," a group of leading mega-cap tech stocks that have soared to $11 trillion in market capitalization. In the first half of this year, they accounted for 73% of the S&P 500's gains.
Meanwhile, Nvidia, which supplies chips for artificial intelligence programs, earned $13.5 billion in its last earnings report. Ives said stabilization and improvement in technology spending in the third quarter set the stage for further bullishness into the year-end.
While there is uncertainty about investor expectations about the trajectory of monetary policy and the 10-year Treasury yield has held steady above 4%, Ives believes technology will overcome these uncertainties, primarily through the power of artificial intelligence spending, which will boost the industry over the next 12 to 18 months. Meanwhile, huge enterprise spending by Microsoft, Google and Amazon is about to pay off, while spending on software, chips and digital media is expected to improve through 2024.
With $1 trillion in tech spending "clearly visible," Ives also said the Fed's monetary hawkish policies could end sooner than expected. Ives wrote: "We believe that although Wall Street's near-term focus is on the Fed, technology stocks will end the year higher as a new round of technology bull market comes. In our view, the Fed is finally starting to wave the white flag and will cut interest rates in 2024."