Analysis: Nvidia stock is on fire. Broader market looks less rosy CNN Business

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Nvidia’s impressive earnings this year have helped propel the stock market to repeated record highs. But beneath the surface, the rally looks uneven.

The S&P 500 has jumped nearly 15% so far in 2024, hitting 31 new highs along the way. Much of those returns have been driven by the Magnificent Seven large-cap stocks, which have seen explosive growth as investors pour money into the artificial intelligence boom.

But beyond that group of tech stocks, the market is looking less rosy. The weighted S&P 500 index, which gives every stock the same weight, is up just 4% this year.

The information technology and communication services sectors of the benchmark index grew by around 29% and 24% respectively. Other S&P 500 sectors posted single-digit gains, excluding real estate, which is the lowest for the year.

At the forefront of meteoric market returns is Nvidia. The company briefly passed Microsoft this week as the world’s largest public company. Shares of Nvidia are up 164% for the year.

The chipmaker’s stock has been in decline for the past year and a half. Nvidia chips are unrivaled in the production of processors that power artificial intelligence systems, including for generative AI, the technology that supports OpenAI’s ChatGPT, which can create text, images and other media.

Can Nvidia’s earnings streak continue, and what does its huge market cap mean for the stock’s growth?

Before Bell spoke with Christopher Barto, senior investment analyst at Fort Pitt Capital Group.

This interview has been edited for length and clarity.

Before the Bell: Are you worried that the stock market’s gains aren’t all there, and most of them are concentrated in the Magnificent Seven tech stocks, especially Nvidia?

I don’t know if it’s necessarily worrisome. I think it’s interesting.

Coming out of Q1 earnings, when you exclude the numbers (the Magnificent Seven earnings), growth is actually down 2% year over year. So most of the market is struggling.

There are some bright spots. There are a lot of other semiconductor companies, and there are other companies that are doing well that just don’t have the market weight that Nvidia has, and we look at those as opportunities that present (to buy.)

Do you think investors are too hung up on Nvidia and optimistic that its stock will continue to rise?

We could go back to Apple a year or two ago. They were the biggest company in the world. And every day it was, «oh, the market depends on Apple.» And then you see the shift a year and a half later, maybe even less than a year, to Nvidia. Now everyone says, «the market depends on Nvidia’s earnings». You will see some sort of change in the market cap over the years.

You look at the change in market cap-weighted indices over time, and this is particularly driven by their economic gain. So in terms of, should investors be concerned that Nvidia is concentrating? I don’t believe so.

So you think Nvidia’s monster run will continue?

I don’t have an answer for that. But I think if you want exposure to AI and the secular mega trends that you’re seeing, you’re going to want to own some of the mega-cap companies like the Googles and the Amazons and the Microsofts and the Metas. because if they’re the ones spending on (the graphics processing units that Nvidia makes) and the servers and all the data centers, they have the ability to essentially pull back that capital expenditure every second to increase their free cash flow .

(A lot) of Nvidia’s revenue comes from Meta, it comes from Google, it comes from Amazon. You’re seeing this shift in these companies that are basically trying to get ahead of AI demand, and those are the types of companies that can basically afford Nvidia’s GPUs at that scale.

Mortgage rates fell this week to their lowest level since early April, taking some pressure off America’s unaffordable housing market, my colleague Bryan Mena reports.

The benchmark 30-year fixed-rate mortgage averaged 6.87% in the week ending June 20, mortgage finance giant Freddie Mac reported Thursday. This is down from last week’s 6.95% average and marks the third consecutive weekly decline. Rates are down from a 2024 peak of 7.22%.

«Mortgage rates fell for the third week in a row on signs of cooling inflation and market expectations of an upcoming Federal Reserve rate cut,» Sam Khater, Freddie Mac’s chief economist, said in a statement. «These lower mortgage rates, coupled with gradually improving housing supply, bode well for the housing market.»

However, mortgage rates remain higher than anything seen in the decade leading up to 2022, when the Federal Reserve begins raising interest rates to fight inflation. Borrowing costs are expected to ease this year, but it may not be much.

Earlier this month, Fed officials penciled in just one interest rate cut for this year, compared to the three they forecast in March. The Fed does not directly set mortgage rates, but its actions affect them through the 10-year US Treasury yield rate, which moves in anticipation of Fed policy moves. Economists do not expect the average mortgage rate to fall below 6% this year.

Read more here.

The co-founder of OpenAI, who left the high-tech AI startup last month, has announced his next venture: a company dedicated to building safe and powerful artificial intelligence that could become a rival to his old employers.

Ilya Sutskever announced plans for the new company, aptly named Safe Superintelligence Inc., in a post on Wednesday X, my colleague Clare Duffy reports.

“SSI is our mission, our name and our entire product roadmap because it is our single focus. Our team, investors and business model are all aligned to achieve SSI,» said a statement posted on the company’s website. «We plan to advance the capabilities as quickly as possible, ensuring that our security always remains at the forefront. That way, we can go in peace.»

The announcement comes amid growing concerns in the tech world and beyond that AI could advance faster than research into using the technology safely and responsibly, and a lack of regulation that has left tech companies largely free to set safety guidelines for themselves.

Sutskever is considered one of the early pioneers of the AI ​​revolution. As a student, he worked in a machine learning lab under Geoffrey Hinton, known as the «Godfather of AI», where they created an AI startup that was later acquired by Google. Sutskever then worked on Google’s AI research team, before helping found what would become the creator of ChatGPT.

Read more here.