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Nvidia’s stock market performance has been impressive and shows the tech giant’s growing influence on Wall Street. Investor enthusiasm for artificial intelligence (AI) remains strong despite the Fed’s slow rate cuts. High interest rates, which were once a concern, now seem to have little impact on the stock market, with the tech sector gaining momentum. Tech stocks are doing well on the back of a strong economy and optimistic earnings outlook.
But investors are not unaware of the ongoing debate in the market about the risk of a stock market bubble in artificial intelligence (AI) and the impact of today’s concentration of major stocks on Wall Street. do not have. According to his April Global Fund Manager Survey from Bank of America (BofA), 40% of asset managers believe an AI bubble exists, while the remaining 45% doubt it is likely. This reflects a division in market sentiment.
The top 10 companies on Wall Street account for 34% of the U.S. stock market value and generate 25% of profits. A recent report by Goldman Sachs highlights the high dependence on some stocks, which is at an almost 100-year high. While Goldman Sachs does not predict an AI bubble or major market swings, it does emphasize the importance of diversification for risk management. Goldman suggests investing in AI-driven companies beyond Nvidia and other tech giants to enhance value creation.
The top 10 stocks set the tone for the S&P 500.
Nvidia, which has soared 240% on the stock market over the past year and quickly surpassed $2 trillion in market capitalization, is clearly leading the way in the AI business. The company is a leading supplier of hardware and software for AI applications such as ChatGPT and Gemini. Goldman Sachs has identified additional technology companies that could benefit from AI and Nvidia’s influence, albeit to a lesser extent.
Goldman says the next area of opportunity for investors will be companies involved in providing the infrastructure needed for AI technology. This includes semiconductor companies, cloud service providers, data centers, and cybersecurity software developers. These companies have increased in value by an average of 13% over the past six months. Goldman said the increase was primarily due to improved valuations rather than revenue growth, unlike Nvidia, which has kept its multiple largely unchanged since early 2023.
Just below Nvidia, companies like chipmaker ARM have doubled their stock prices in the past year. US software developer Synopsys has gained 13% this year. Computational software company Cadence Design Systems is up 15% in 2024 and 47% over the past 12 months. Advanced Micro Devices is up 30% this year, and software and semiconductor company Qualcomm’s stock is up 17%. Other AI infrastructure companies include cybersecurity giants such as Palo Alto Networks, Palantir, and CrowdStrike Holdings.
Tier 3 includes a group of companies that Goldman Sachs believes would benefit from products and applications that integrate AI technology. The group has seen its average share price rise 20% in recent months, thanks in part to improved valuations and revenue growth. This tier includes companies such as Meta, Intuit, Nutanix, Accenture, Adobe, Uber, Mastercard, Apple, Snowflake, and Salesforce.
Long-term benefits of AI
Nvidia is at the forefront of the AI boom, which is widely expected to improve business productivity and revenue. Investors are optimistic about the long-term benefits of AI for telecommunications companies like Pinterest and The New York Times Company, energy companies like Occidental Petroleum, and consumer services and products companies like H&R Block and Walmart.
Nvidia now dominates the portfolios of many stock investors, especially hedge funds. By the end of 2023, 149 hedge funds had taken positions in Nvidia, but next-tier companies were represented in only 40 hedge funds, according to Goldman Sachs.
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