The technology-heavy Nasdaq outperformed peers at the close of trade on Thursday after chip-maker Nvidia's bumper revenue forecast reaffirmed the strength of the AI boom and fueled gains in technology stocks.
Nvidia NVDA.O shares jumped after the chip company's robust forecast met lofty investor expectations, bolstering the view that the tech rally still has room to run as companies at the heart of the AI buildout continue to deliver impressive growth.
"Nvidia's results show that the AI boom is not running out of demand ... while delivering that growth is becoming more expensive and capital-intensive," said Lale Akoner, global market strategist at eToro.
Morgan Stanley said in a note on Thursday that Nvidia's forecast for revenue growth of 70% next year is well above Morgan Stanley's estimate for a 52% rise and that the consensus estimate is closer to 40%.
"We would expect Nvidia to continue to knock down barriers to higher growth," said analyst Joseph Moore in the note.
Nvidia has warned that shortages of memory components could curb the pace of the industry's growth.
According to preliminary data, the S&P 500 .SPX gained 55.03 points, or 0.72%, to end at 7,730.73 points, while the Nasdaq Composite .IXIC gained 411.16 points, or 1.57%, to 26,540.78. The Dow Jones Industrial Average .DJI rose 100.33 points, or 0.19%, to 53,564.21.
U.S. chip-linked stocks broadly rose, with the semiconductor index .SOX notching strong gains.
The S&P 500 Information Technology sector .SPLRCT rose, making it the best gainer among the S&P 500's 11 constituents, which were mostly in the red.
"While Nvidia’s earnings beat and strong guidance restarted the party, it's apparent that not all sectors of the market were invited," said Charlie Ripley, senior investment strategist at Allianz Investment Management.
"Market headwinds continue to be a factor as higher interest rates, geopolitical tensions and global trade, among other things, are playing a role in the weakness seen across other sectors."
Markets turn to Warsh's Jackson Hole speech
With Nvidia results out, investor attention turns to Federal Reserve Chair Kevin Warsh's first Jackson Hole address on Friday for hints on the central bank's stance on the latest inflation data and the U.S. Treasury's efforts to tame yields.
"A common theme from Warsh has been his focus on the supply side of the economy and we expect that to remain the focus," said Christopher Hodge, chief U.S. economist for Natixis.
"I highly doubt that Warsh will be too declarative in his assessments of what’s to come, but it would not be surprising if he expressed some skepticism about previous policy assumptions and generally struck an anti-doctrinaire approach."
A hotter-than-expected Personal Consumption Expenditures reading on Wednesday muddied the policy outlook, dampening some of the optimism generated by a benign consumer inflation report earlier this month.
Two Fed officials shared their ongoing concerns about the inflation outlook on Thursday, reiterating their stance on rate hikes to combat price pressures.
Meanwhile, the number of Americans seeking unemployment benefits for the first time fell for a second week, while the overall number slid to the lowest in a month, signaling a stable labor market.
Software stocks rise on Salesforce and CrowdStrike updates
Salesforce CRM.N surged after raising annual revenue and profit forecasts, and rolling out a new plug-in integrated with Anthropic's Claude AI models. The stock was the biggest boost to the blue-chip Dow, and was set for its best one-day jump in six years.
CrowdStrike CRWD.O climbed after the cybersecurity software provider raised its annual revenue forecast and topped second-quarter earnings estimates.
The Salesforce and CrowdStrike reports calmed worries that advanced AI tools could upend the traditional software industry, boosting investor appetite for beaten-down software stocks and narrowing the gap with semiconductors, which are seen as the primary beneficiaries of the AI boom.
Shares of other software firms, including ServiceNow NOW.O and Palo Alto Networks PANW.O, also rose.
Moderna MRNA.O dropped after unveiling a $2 billion convertible bond sale, while HP HPQ.N was lower after shipments and margins of its PC unit declined in the third quarter.
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