The Nvisible Hand

Aoifinn Devitt, Chief Global Market Strategist

Better than expected.  It has been a bit of a mantra for the year so far – better economic growth, better trend of inflation, a better outlook for jobs and a better level of the S&P. And now the much-awaited Nvidia revenues were better than expected – up 265% YoY on a booming AI business, with earnings also surpassing expectations. The company is benefiting from our colossal demand for data – which really does seem to be the new oil – as every industry from auto to healthcare to financial services clamored for more data capability. The only negative was around Chinese demand, which fell due to regulatory changes and restrictions on the sale of some of its chips to China due to security concerns.

The surge in the stock price (now up over 200% in the last year), which is likely to send ripples through the rest of the tech sector, reflects the importance of first mover advantage in an area like graphic chips, although as competition builds, this advantage may well fall away as rivals such as AMD build their own capabilities. The stunning rise, though, is similar to the rise in pharmaceutical stocks such as Moderna during their COVID vaccine production heyday – see below. As we discussed last week these stocks have struggled now that their crown jewels are as good as worthless.

Source: Bloomberg as of 2/22/24 at 9:00 AM.
Source: Bloomberg as of 2/22/24 at 9:00 AM.

It’s not always better than expected though. Parts of the market show waning demand, reflecting a fickle consumer, and revenues have been challenged at EV makers such as Rivian as well as financial companies.  The market performance for the past week is shown below:

Source: Bloomberg as of 2/21/24

And the echoes of the consumer “vibecession” we spoke about last year remain – as the cumulative effect of inflation is still felt, even if the month on month is falling to 3.1% as we noted last week. Food prices are continuing to rise, and foods share of disposable income is now at a three-decade high, according to the Department of Agriculture[1]. And now investors are taking a larger bite of the food price action. The interest of investors in owning farmland has been steadily growing over the past decade but the share of US farmland owned by investors has doubled since 2020. Land prices have followed too – in part driven by the rising demand, in part by the rising profitability of the land due to rising food prices.

And so the upside surprise is felt across many asset classes with the notable exception of real estate, which still languishes in some uncertainty. The “Nvisible hand” of AI and its beneficiaries will ripple through the markets for the next few weeks as consumers and investors wrap their imaginations around the sea change in our data consumption and demand for this technology. But this story is not over yet.

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