Nvidia drives global markets to records, as European stocks defy German economic gloom

Markets are a sea of green on Thursday after Nvidia’s earnings report has boosted global risk appetite and sent stock markets surging. The boost to Nvidia’s share price after another monster earnings report and super forecast has led to a collective relief rally across markets. Nvidia is expected to open higher by more than 14% when US markets open on Thursday, and the Nasdaq is also expected to open up more than 2% higher. The Nikkei and the Eurostoxx 50 index have both hit record highs earlier this morning. Japan’s Nikkei has not reached a record high since 1989, and the index is now above 39,000. When Nvidia was called the most important stock in the world right now, it doesn’t sound like hyperbole.

Nvidia: The vanguard of the AI revolution  

Nvidia is now on the verge of surpassing Alphabet, the Google parent, in terms of market value. It may be considered one of the Magnificent 7 US tech stocks, but it is easily outpacing gains for the other 6 stocks, with Microsoft expected to open higher by 1.6%, and Meta is currently expected to rise by 2.6% later on Thursday. Nvidia is standing above and beyond its peers in the tech world due to its position as a vanguard of the AI theme. It is the chief producer of hardware that is powering the AI revolution. It has a 98% market share of the GPU market that powers data centres as they generate the AI models of the future. Jensen Huang, the CEO of Nvidia was as bullish as any CEO I have ever heard, when he said that we are reaching a ‘tipping point’ for artificial intelligence, and that demand was coming from all industries across all regions of the world.

Move over Elon

Move over Elon, Jenson Huang is the modern-day Henry Ford or James Watt, and while there are some concerns that competition will eat into Nvidia’s current 98% GPU, it will be hard to dethrone Huang or Nvidia in the current climate.

Global tech stocks

Global tech stocks with a link to AI should do well on the back of Nvidia’s results, as they confirmed the view that demand is growing for anything that powers the AI industry. Thus, it is no surprise that the Eurostoxx 600 and the Nikkei both reached record highs in the hours after Nvidia released results. The information technology sector makes up 26.36% of the Nikkei, and 16.96% of the Eurostoxx index. ASML, the Dutch supplier to global chipmakers, is up more than 4% on Thursday and is powering the European indices to record highs. The FTSE 100 is also higher today, but it is lagging other global indices largely because it does not have a big enough tech sector. The FTSE 100’s tech sector is just over 1% of the index. Today is not the day for energy or financial firms to shine, tech stocks are hogging the limelight, and Nvidia is centre stage.

Germany’s dire manufacturing sector fails to dent the Dax

Elsewhere, the Dax is also on a march higher, even though German manufacturing PMI slumped to its lowest level since October, as declining new orders at home and abroad weighed on the index which fell to 42.3 for February, down from 45.5 in January. Germany is acting like a brake on Eurozone growth right now, and there is a clear divergence between Germany, which is struggling due to its large industrial sector, and France, where both its manufacturing and service sector PMIs beat expectations. The German government has already slashed its growth forecast for this year to 0.2%, which suggests that the economy will only have a limp recovery this year after contracting in 2023. Overall, the Eurozone PMI reports were stronger than expected, defying the German gloom. The better reading for the composite PMI, which rose to 48.9 from 47.9 in January, was driven by the service sector. The service sector PMI for the currency bloc as a whole rose to 50, the first time that it has been in expansionary territory since July, and hopefully stemming a decline that persisted in the second half of 2023.

In the UK, there were also better than expected PMI readings for the service sector, which remained at 54.3 for February, the same rate as January. The composite PMI also rose to 53.3 from 52.9, as the service sector cancelled out the weaker readings for the manufacturing index, which remains in contractionary territory below 50.

The Dax continues to defy Germany’s economic gloom, as it moves in lock step with the overall Eurostoxx index and outpaces gains in the Cac, this is because it is more closely aligned with the global economic outlook than the German economic outlook. Thus, the Dax is doing well due to the strong performance from individual companies like the automakers and Siemens, which also rose to a record high on Thursday.

Chart: European stock market performance, the Dax is outperforming the Cac, even though German growth is weak

Source: XTB and Bloomberg