Asian chip stocks rally after Nvidia earnings revive AI optimism

Asian chip firms experienced a rally on August 27 after Nvidia's impressive earnings report revived optimism about the AI investment boom, despite US data revealing persistent high inflation. Nvidia, the world's most valuable company, exceeded analyst expectations by reporting revenues more than double compared to the previous year in the second quarter and anticipating another surge in July-September.

The tech giant's results are largely driven by large purchases from major AI companies like OpenAI, Amazon, Microsoft, and xAI. Since October, Nvidia's stock has skyrocketed, marking it the first to hit a $5 trillion market capitalization due to soaring demand for its chips.

However, investors have grown apprehensive about the sustainability of the AI spending frenzy, fearing a long-term return on the massive cash investment. The concerns were briefly alleviated by Nvidia's strong earnings, with CEO Jensen Huang asserting, "The AI infrastructure buildout is at full steam." Charu Chanana of Saxo Markets noted, "This was another beat-and-raise quarter from Nvidia, but the biggest positive was not the quarterly beat itself...

Management effectively telling investors that AI demand remains supply-constrained even at this scale, and guiding to around 70 per cent revenue growth in fiscal 2028." This positive outlook countered the belief that the AI capital expenditure cycle was nearing its peak.

Nvidia's stock surged by around 5 percent in after-hours trading following the report, and other Asian chipmakers, including SK hynix, Samsung, Kioxia, and Taiwan's TSMC, also saw gains of 2 to 3 percent, 4 percent, more than 4 percent, and 4 percent, respectively. However, while Asian markets reacted positively, global markets faced a mixed performance.

Although Seoul, Taipei, and Shanghai rose, Tokyo, Hong Kong, Sydney, Singapore, Wellington, and Manila experienced declines. This mixed sentiment was attributed to persistent high inflation, with the Federal Reserve's preferred gauge of inflation remaining at a three-year high of 3.7 percent in July. Another report indicated that second-quarter GDP growth was 1.5 percent, matching market expectations.

The tepid market performance was influenced by the Federal Reserve's preparatory meeting in Wyoming, where investors awaited insights from Fed chair Kevin Warsh regarding potential interest rate adjustments. Market analyst Matt Simpson of City Index stated, "The latest figures are hardly recessionary signals and provide little reason to expect any hint of dovishness from Kevin Warsh."

Despite the cautious outlook, hopes for inflation easing have been bolstered by a recent drop in oil prices, which have fallen more than 8 percent since Friday as Iran and Oman negotiate a temporary shipping corridor in the Strait of Hormuz. However, the details remain unclear, including potential fees for accessing the waterway.