Tech stocks drive ASX higher after Nvidia calms AI bubble fears

The Australian sharemarket staged a relief rally on Thursday after Nvidia beat market expectations in its highly anticipated results after Wall Street’s closing bell, calming investor nerves over the artificial intelligence frenzy.

The S&P/ASX 200 closed 104.80 points, or 1.2 per cent, higher at 8552.70. Tech stocks drove the rebound from this week’s losing streak, which saw the local bourse wipe out $60 billion on Tuesday and then fall a further 0.3 per cent on Wednesday on fears share prices have run too high in an AI bubble. The Australian dollar was trading at US64.86¢ in late afternoon.

The market got a further boost in the afternoon following news that Beijing is considering stimulus measures to turn around China’s struggling property market after a years-long slump that’s weighed on demand for aluminium, copper and iron ore, Australia’s biggest export.

“Relief is probably the word,” said Matthew Haupt, a portfolio manager at Wilson Asset Management in Sydney, referring to Nvidia’s earnings. “We needed a circuit breaker for the sell-off in equity markets as sentiment was turning south, and they delivered a great result.”

The AI chipmaker’s revenue in the October quarter surged 62 per cent to $US57 billion ($88.1 billion), delivering net income of $US31.9 billion, up 65 per cent from a year ago. Analysts had predicted more than 50 per cent growth in profit and sales. And Nvidia flagged sales in the current quarter would rise 65 per cent to $US65 billion, past Wall Street’s $US57 billion forecast.

“There’s been a lot of talk about an AI bubble,” Nvidia chief executive Jensen Huang said on a conference call with analysts. “From our vantage point, we see something very different.”

Sales of the company’s Blackwell AI chips “are off the charts, and cloud GPUs are sold out,” he said.

“We’ve entered the virtuous cycle of AI. The AI ecosystem is scaling fast – with more new foundation model makers, more AI start-ups, across more industries, and in more countries. AI is going everywhere, doing everything, all at once.”

The chip giant’s eye-popping results soothed fears that the world’s massive spending on AI products and services has got ahead of the demand for the technology, prompting investors to wade back into the tech sector.

Australia’s biggest tech stock, WiseTech Global, gained 2.1 per cent, and fellow software makers Xero and Technology One rose 1.6 per cent and 4.4 per cent, respectively. Family member tracking app Life360 climbed 4.2 per cent, and AI data centre operator NextDC finished 2.2 per cent higher after jumping 8 per cent in the first half hour of trade. Afterpay owner Block surged 10.9 per cent.

“Market psychology has been negative this month as investors worried that the artificial intelligence infrastructure build-out was a bubble, and in a few years we may look back at this time and point to signs that it was,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

“But in the meantime, the largest technology companies in the world are extremely profitable, and they are reinvesting billions of dollars into data centres, servers, and chips and the spending is real.”

On the property front, data centre owner Goodman Group climbed 1.9 per cent, while Charter Hall jumped 6.7 per cent after it raised its earnings forecasts, citing heightened investment activity.

In mining, Lynas Rare Earths – which digs out the minerals essential for AI hardware and components in data centres, processors, and robots – rose 1.8 per cent, having soared as much as 7.8 per cent earlier. Uranium miners – viewed as key for powering AI’s data centres – also advanced, with Deep Yellow gaining 6.6 per cent and Paladin Energy up 2.1 per cent.

Iron ore giants BHP, Fortescue and Rio Tinto posted solid gains in the afternoon, finishing up 1.9 per cent, 4.2 per cent and 2.2 per cent, respectively, on the China stimulus news. A slew of options from mortgage subsidies to tax rebates and lower transaction costs are being considered by Beijing’s policymakers, Bloomberg reported, citing sources familiar with the matter. Aluminium climbed as much as 0.9 per cent, while iron ore futures in Singapore clawed back earlier losses.

Gold miners also rallied again, with Northern Star up 3.8 per cent, Evolution Mining rising 3.3 per cent and Newmont adding 1.2 per cent.

Bolstering the market’s broad-based gains, the big four banks all finished higher as bargain hunters came back, with CBA – the nation’s biggest stock – and Westpac both up 1.1 per cent. National Australia Bank advanced 1.4 per cent and ANZ Bank added 0.9 per cent. Investment bank Macquarie Group rose 2.4 per cent.

Overnight in New York, Nvidia’s stock had climbed 2.9 per cent before the release of the results. In after-market trading after the release, Wall Street’s most influential stock rallied 5.1 per cent. Futures for the S&P 500 were up 1.3 per cent and for the tech-heavy Nasdaq climbed 1.8 per cent in the afternoon (Sydney time), pointing to gains when Wall Street resumes trading on Friday.

Nvidia has grown to become the largest stock on Wall Street and briefly topped $US5 trillion in value. That means its movements have more of an effect on the S&P 500 than any other stock, and it can single-handedly steer the index’s direction some days.

Nvidia has become a barometer for the broader frenzy around AI technology because other companies are using its chips to ramp up their AI efforts. Palantir Technologies, Amazon, Microsoft and other AI-linked stocks have been a major reason the US stock market has been setting records this year.

Worries have been rising, though, that all the investment may not produce as much profit and productivity for the economy as earlier hoped. Critics have been suggesting AI’s surge is similar to the bubble that enveloped dot-com stocks, which ultimately imploded in 2000 and dragged the S&P 500 down by nearly half.

“These players in the AI space have gone out of their way to continually raise the expectations bar, and now they have to not only deliver on the numbers, but continue to feed the market’s rising expectations,” Michael O’Rourke, chief market strategist at Jonestrading, warned before Nvidia’s result. “It is a dangerous game for public companies to play.”

with AP, Bloomberg

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