Nvidia, the chipmaker underpinning a much-hyped artificial intelligence revolution, saw its market capitalization briefly pass US$2 trillion for the first time on Friday amid a record-breaking week for Wall Street.
Nvidia’s stock traded as high as US$823.94 per share on the tech-heavy NASDAQ Friday before closing lower at US$788.17, up marginally from Thursday’s close.
Shares of the Santa Clara, Calif.-based company surged after an earnings report Wednesday that surpassed estimates and set out lofty expectations for demand in the year ahead.
The S&P 500 and Dow Jones Industrial Average clung on to end another session at fresh record highs on Friday. All three Wall Street indices scored weekly gains, as artificial intelligence stocks had enough steam to keep the rally chugging along.
Canada’s main stock index gained 95 points on Friday, notching another 22-month high after adding 150 points on Thursday.
Nvidia added US$277 billion in market value Thursday, setting a new record for a single-day gain on Wall Street. That helped the company vault to US$2 trillion from US$1 trillion market value in around eight months — the fastest among U.S. companies and in less than half the time it took tech giants Apple and Microsoft.
2:19 ‘AI gold rush’: Nvidia nears trillion-dollar market cap club
Barry Schwartz, chief investment officer and portfolio manager at Baskin Wealth Management, tells Global News that Nvidia’s rise is “something impossible to comprehend.”
“Nvidia has been one of the most stunning performers the world has ever seen,” he says. “It all has to do with the insatiable demand for AI and what’s coming.”
Schwartz says that the large cap tech companies such as Amazon, Google, Meta and Microsoft have all signalled in their recent earnings calls that they intend to collectively invest billions this year to build out their capacities to handle the cloud computing workloads needed to power AI tech.
AI uses have exploded over the past year from engines like ChatGPT writing essays to more recent applications like Sora, which are capable of rendering full video based on simple prompts.
Since Nvidia is the market leader in producing the kinds of semiconductors that power the massive computing needs for these AI tools, Schwartz says that many of those companies’ investments are going to go directly to Nvidia in the years ahead.
Nvidia’s rapid ascent in the past year has led analysts to draw parallels to the picks and shovels providers during the gold rush of 1800s.
“The people who made the most money in the gold rush of the mid-1800s were the ones providing the tools to get the job done, not those hunting for the precious metal,” said Russ Mould, investment director at AJ Bell, per Reuters.
“Nvidia is effectively playing the same role today in this tech revolution.”
1:55 Business Matters: Growing number of Canadians use AI tools despite the concerns
One of the biggest risks for Nvidia making good on the lofty goals it has benchmarked are holdups in supply, Schwartz says. Semiconductor shortages were a hallmark of the supply chain snags that came to define the COVID-19 pandemic, and he cautions there’s a chance the company doesn’t have the raw materials needed to meet demand.
“There’s limits to how many chips it can produce. There’s limits to how many factories it can build and foundries it can produce and supplies and components it can get. So that’s one of the biggest risk for Nvidia,” he says.
Schwartz cautions that there will likely be “boom-bust” cycles for AI and that Nvidia may not hold onto its market share as competitors like AMD and Taiwan Semiconductor try to edge out the current titan in the space. He also says there’s a chance giants like Amazon and Microsoft get into the semiconductor business themselves rather than rely on external suppliers.
“Unless Nvidia comes up with faster, innovative and proprietary technology that no one can duplicate, there is a risk at some point that its lead starts to get eroded for sure,” Schwartz says.
“But the tailwinds for the next two to three years for Nvidia, because of the spend by the technology companies to rush into this goldmine of AI, it means that you’re looking at some pretty decent results from Nvidia going forward.”
How markets react to interest rate forecasts
News from inflation in both Canada and the United States is also set to have an impact on interest rate paths and growth outlooks for stocks.
Annual inflation cooled more than expected to start the year north of the border, Statistics Canada reported Tuesday, dropping below the three per cent bar in January.
That led markets to raise the odds of an interest rate cut from the Bank of Canada as early as April, though most forecasters are expecting easing to begin sometime in the summer.
There were some positive bits of inflation news in the U.S. on Friday morning as well, with revised figures for December showing prices rose less than initially thought for the month.
But the U.S. Federal Reserve this week pushed back on expectations for rate cuts to begin in the months ahead after hotter-than-expected inflation data last week dampened stock growth. Traders firmed up bets against any U.S. interest rate cuts before June after Fed Governor Christopher Waller on Thursday said he was in “no rush” to lower rates.
1:23 Trudeau ‘optimistic’ BoC will bring down interest rates this year
BMO chief economist Doug Porter said in a note Friday that the stock market surge is likely to make a further case to the Fed not to rush its rate cut timeline. Amid sticky services inflation and a tight jobs market, a rally in equities could spur an uptick in consumer and business spending and “hardly calls out for the need for rate relief,” he wrote.
Interest rate expectations are critical for stock valuations for a few reasons, Schwartz explains. Firstly, businesses have debt to handle just like any household, so a lower path for interest rates removes some of the burden from borrowing costs on their bottom lines.
But investors are also more keen to put money in the stock market when interest rates are lower, he adds. When fixed-income products like guaranteed investment certificates (GICs) are providing bigger returns amid higher rates, there’s less incentive to jump into the riskier stock market. But as benchmark rates fall, investors are more likely to put their money in higher risk, higher growth opportunities to realize a return.
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“What you need to know is when interest rates are high, stock valuations should be lower. When interest rates are lower, stock valuations are much more attractive,” Schwartz says.
That’s why day-to-day news on inflation and messaging from central bank officials can send aftershocks through the stock market.
While news month-to-month can shift market expectations for when those rate cuts will come and how steeply they’ll decline, Schwartz says there’s confidence among most analysts that interest rates in Canada and the U.S. will start to drop at some point in 2024 as the current inflation fight nears its end.
That’s part of what’s been fuelling a strong run for stock markets so far in 2024 and high-growth prospects like Nvidia, he says.
There’s a chance that these stock valuations have gotten ahead of themselves, he notes, and that there’s room for a correction if the current rate cut timelines priced into the market turn out to be overly bullish. But Schwartz says that corporate earnings in the first quarter of 2024 have so far been giving an “upbeat” impression for growth in the year to come.
“If interest rates aren’t going up anymore and inflation has been tamed, then that’s a pretty robust environment for stock prices,” he says. “Have stocks gotten ahead of themselves in the short term? Time will only tell.”
– with files from Reuters
1:01 Policy interest rate remains unchanged: U.S. Federal Reserve
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
