Nvidia boosts tech stocks but caution dominates ahead of Fed speech

Nvidia's blockbuster AI chip earnings propelled technology stocks on Thursday (Aug 27), but the market remained subdued as investors awaited the US Federal Reserve chairman's key speech on the state of the world's largest economy. Despite inflation and rising global bond yields cooling the excitement surrounding the AI boom, Nvidia's staggering results propelled the chipmaker up nearly nine per cent.

Salesforce, another prominent tech player, also contributed to the market's uplift, surging more than 22 per cent following better-than-expected earnings driven by high demand for AI and data products. Analysts remain optimistic about the AI sector, noting that Nvidia's strong performance indicates that the capital expenditure cycle for AI is not slowing down, but rather continuing at a rapid pace.

Nvidia, currently the world's most valuable company by market value, exceeded analyst expectations with revenue more than doubling in the second quarter to $96 billion. The surge in Nvidia's stock lifted all three major US equity indices, with the tech-focused Nasdaq gaining 1.6 per cent. However, the market's gains were not evenly distributed; only the technology sector advanced among the 11 industrial sectors in the S&P 500.

Consumer discretionary and industrial sectors, as well as real estate, experienced significant declines.

Investors are now anticipating Fed Chair Kevin Warsh's address at a crucial central bankers conference in Jackson Hole, Wyoming on Friday. Warsh's previous speech at a Fed meeting in July was criticized for providing ambiguous guidance on inflation and interest rate adjustments. Many investors are frustrated with Warsh's lack of clarity on when the Fed will act to curb inflation, which remains well above its target.

Oil prices rebounded following a series of declines as investors await updates on diplomatic efforts to reopen the Strait of Hormuz for tanker and cargo traffic. The US has vowed to impose further economic pressure on Iran to compel it to open the strait, which has contributed to soaring energy prices. However, shipping data reveals that traffic through the Strait remains at a mere fraction of pre-war levels.