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
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
