When Nvidia (NVDA) posted a blowout quarter, the stock initially rallied by around 7% at the open. The gains faded, despite the firm announcing a big stock buyback program. How will Nvidia and the AI euphoria play out?
Market participants widely believe AI is in a bubble that will crash, eventually. But markets are forward pricing mechanisms. Nvidia posted revenue that exceeded estimates by billions. Unless orders dry up, markets will continue to assign a premium on NVDA stock. They expect AI revenue growth will continue at the current trajectory.
SMCI (SMCI) posted strong results on Aug. 8. However, shares peaked at $350 before the report. It briefly rallied back to ~ $300 before closing at $253.96 last week. The momentum for AI plays is on the decline.
Long-term tech investors may pick up Meta Platforms, Alphabet (GOOG), or Microsoft (MSFT). They are dominant AI plays whose moat will not erode any time soon. Still, the price-to-earnings above 30 times risks compressing. The firms are so large that their revenue growth momentum will stall.
Watch the market’s sentiment in AI stocks change. When traders do not react to bullish news in the sector, the fade will continue.
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