MondayFounder

Nvidia’s remarkable financial report on Wednesday solidified a crucial realization for both the markets and the economy: Artificial Intelligence (AI) is undeniably the future. The implications of AI will permeate various aspects of our lives, including personalized shopping, autonomous vehicles, and a wide range of applications in healthcare, gaming, and finance.

Nvidia’s staggering first-quarter earnings not only substantiated this phenomenon but also propelled the company toward the elite league of tech giants with market valuations nearing $1 trillion. Its leadership position in both Wall Street and Silicon Valley is indisputable.

Chief U.S. economist at TS Lombard, Steve Blitz, emphasizes the significance of AI, stating, “AI is real, AI is not a fad and we’re only in the early innings. Does it change the course of the economy over the next three to six months? Probably not. Does it change the economy over the course of the next three to six years? Absolutely, and in very interesting ways.”

Blitz envisions numerous transformations driven by AI, such as reduced demand for foreign labor, the automation of coding and creative writing, and a multitude of other advancements that surpass our current understanding.

One striking example that showcases the potential of AI is OpenAI’s ChatGPT, an advanced chatbot capable of engaging in conversations with users. This breakthrough highlights the immense value and impact of AI, supporting the notion that this decade will witness technology’s wider application beyond our present comprehension, with tremendous upside.

Nvidia has already begun reaping the rewards of AI. Surpassing Wall Street estimates, the company reported earnings of $1.09 per share on revenue of $7.19 billion. Furthermore, their projected sales of $11 billion for the current quarter, primarily driven by their AI chip-supplying business, has generated considerable enthusiasm. Consequently, Nvidia’s shares skyrocketed more than 26% by midday Thursday, propelling the company’s market value to over $950 billion.

However, the broader market response failed to match this fervor. While the S&P 500 semiconductor index surged by 11.4%, the Nasdaq Composite experienced a more modest increase of 1.7%. The S&P 500 saw a rise of approximately 0.9%, while the Dow Jones Industrial Average suffered a decline of over 50 points as concerns persisted regarding the ongoing debt ceiling negotiations in Washington.

Meanwhile, worries about an economic slowdown lingered. Despite his excitement about AI, Blitz remains convinced that the United States is heading toward a recession. The lukewarm market reaction served as a reminder of an economy divided by the slow diffusion of technological advancements and benefits.

Peter Boockvar, the chief investment officer at Bleakley Advisory Group, emphasizes that the spillover effects and advantages derived from AI will unfold gradually over several years and decades. He raises questions about whether this growth is incremental or if it diverts spending from other sectors, considering that parts of the economy beyond travel, leisure, and restaurants are struggling.

Boockvar draws attention to the performance of small-cap stocks, which experienced significant losses on Thursday, with the Russell 2000 declining by approximately 0.8% in early afternoon trading.

Despite the potential cost-saving benefits of AI, such as reduced staffing expenses, even companies in positions to benefit, like Nvidia’s chief competitor in the chip space, Intel, suffered a 6.2% decline. According to FactSet, overall quarterly tech earnings have decreased by 10.4% leading up to this week. However, some of the largest tech firms managed to surpass Wall Street’s lowered expectations.

Boockvar cautions that there are substantial weaknesses in the economy that cannot be disregarded. If the AI craze cools down, the underlying business trends of tech giants like Microsoft.