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Equity investors took a breath this week after tech leviathan Nvidia posted above-guidance earning results, helping to allay concerns around a broader AI-related market decline.
The US semiconductor giant announced Q4 revenues that were US$3bn above guidance. (Gross margin results and guidance remained steady at ~75%.)
Ahead of Wednesday’s announcement, investors and analysts had expressed misgivings about the durability of the huge capital expenditure spend by the so-called AI hyperscalers. In this context, a weaker Q4 earnings statement from Nvidia may have been interpreted as an early warning of trouble ahead.
In the event, though, the company delivered a solid earnings and guidance beat, with data‑centre revenue up 75% year‑on‑year, confirming that AI infrastructure spending remains resilient.
By Thursday’s close, equity markets had responded in kind. The S&P 500 index rose 1.04% on the week, while the tech-heavy Nasdaq had risen 1.11%. Gold declined 0.97% to US$5,185.21 per troy ounce, bringing its year-to-date performance to 19.7%1.
Figure 1: Rotation ahoy
Martin Todd, Portfolio Manager, Sustainable Global Equities, notes that Nvidia results and guidance should provide reassurance that the accelerated AI infrastructure build-out has a continued growth runway.
There’s compelling evidence that hyperscalers are seeing a tangible return on incremental AI capex
“There’s compelling evidence that hyperscalers are seeing a tangible return on incremental AI capex,” he says. “Nvidia’s non-hyperscale customers are growing faster than hyperscalers; products like OpenAI’s Codex software development platform and Anthropic’s Claude Cowork agentic enterprise platform have experienced strong product market fit where compute demand is skyrocketing.”
Damian McIntyre, Federated Hermes’ Head of Multi-Asset Solutions Team, highlights Nvidia’s lengthy track record of positive surprises, noting that the company has now beaten expectations in eight straight earnings reports.
However, he says this week’s earnings news should be seen in the context of an ongoing rotation out of US large cap growth into other, hitherto less-loved areas of the equity markets.
“It used to be that AI pushed stocks higher,” he says. “Now, it seems to be the cause of many a sell-off. In recent weeks, we’ve seen the spectre of AI drive share prices down for firms in software, trucking, logistics, and wealth management. The reason? Analysts and investors are now nervous that AI deployment could thin the profit margins of established companies.”
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1 Bloomberg as at 27 February
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