What's next for the S&P 500 after hitting a record? Nvidia is the key

Published Thu, Feb 22 20242:38 PM EST

Where markets go next may well depend on how Nvidia does after going forward. The S & P 500 rallied to a fresh record Thursday after Nvidia, which has helped lift the broader markets for the better part of the past year, surged more than 14% on a monster fiscal fourth-quarter earnings report . The blowout quarter suggested the AI chipmaker is not slowing anytime soon. Revenue skyrocketed 265% year over year, while net income was up a whopping 769% in that time. The report also gave a boost to the Nasdaq Composite, putting the benchmark on pace for its biggest one-day gain in over a year. The VanEck Semiconductor ETF (SMH) surged 7%, which would be its best one-day performance since May 2023. NVDA 1D mountain Nvidia But investors are wondering how much longer Nvidia can boost markets, especially with bond yields rising, geopolitical risks swirling and the Federal Reserve still working to tamp inflation down to its 2% target. "The answer here will depend on NVDA," Tom Essaye of The Sevens Report wrote in a Thursday note. "The stock is at an all-time high ... and if it can hold (or extend) this rally ... it'll imply that tech can help lead this market higher." "However, if we see any type of reversal in NVDA, that will be a sign of exhaustion in the 'AI' tech space," Essaye added. Nvidia and other artificial intelligence darlings, including Meta Platforms, powered the broader market last year, while other stocks underperformed. In 2023, the S & P 500 soared 24%. Those gains were also driven by hope that the Fed will soon ease monetary policy. Patrick McDonough, portfolio manager at PGIM Quantitative Solutions, expects that AI will continue to carry the market in the near term, and thinks investors can find opportunities across just about all sectors as stocks drift higher. However, he cautioned that investors should keep an eye on inflation, which has the potential to hurt the positive sentiment if it proves stickier than markets were anticipating. Solita Marcelli, chief investment officer of Americas at UBS Global Wealth Management, wrote in a Thursday note that Nvidia's results suggest potential for "further gains in technology stocks, especially those that would benefit from the AI revolution." To be sure, some think now is the time to start trimming Nvidia exposure even if there is further upside, given that the stock is up 56% this year alone. "I would be more of a profit taker here," said Charles Ashley, portfolio manager at Catalyst Funds. "Could it go higher? Of course it could. But I think it's an asymmetrical risk reward profile. ... I'd rather take it elsewhere in something that hasn't had as much of a run as Nvidia has." Still, just about everyone in the market can agree that Nvidia's results prove that the AI momentum can continue to power markets for now. Said PGIM's McDonough: "It'd be awfully hard to bet against the sort of AI craze in the short term."