CNBC Daily Open: It's a boom, it's a bubble, it's still not enough for investors: It's AI

U.S. equities, including the S&P 500, Dow, and Nasdaq, reached new intraday highs, propelled by strong tech performance as Nvidia rose nearly 5% and Microsoft climbed 2%, leading both Apple and Microsoft to briefly exceed $4 trillion market valuations. This AI-driven momentum was further highlighted by Nvidia's $1 billion investment in Nokia for AI development, causing Nokia shares to jump 22%, and SK Hynix reporting record Q3 profit driven by AI memory demand. Globally, the FTSE 100 also hit an all-time high, while gold entered correction territory, and markets anticipate a 25 basis point Fed rate cut this week.

Analysis

The U.S. equity markets, including the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, reached new intraday highs, with the FTSE 100 also hitting an all-time high, largely propelled by robust performance in the technology sector. Nvidia surged nearly 5% and Microsoft climbed approximately 2%, contributing to both Apple and Microsoft briefly surpassing a $4 trillion market capitalization, a first for Apple. This broad market strength underscores significant investor confidence, particularly in AI-driven growth.

Further illustrating the pervasive impact of artificial intelligence, Nvidia announced a $1 billion investment in Nokia to develop AI plans and next-generation 6G cellular technology, resulting in a 22% jump in Nokia's shares. Concurrently, SK Hynix, a key memory supplier to Nvidia, reported a record 62% year-over-year surge in Q3 operating profit to $7.94 billion, driven by strong AI-fueled memory demand. Microsoft's $13 billion investment in OpenAI's for-profit arm is now valued at $135 billion, following OpenAI's restructuring, highlighting the substantial appreciation of early AI stakes.

The optimistic market sentiment is further supported by expectations of monetary easing, with markets assigning a near 100% probability of a 25 basis point Federal Reserve rate cut this week. Conversely, gold has entered correction territory, falling below $4,000 after recently trading above $4,300, potentially signaling a shift in investor risk appetite or inflation outlook.

Key Decisions for Investors

• Investors should evaluate the sustainability of current AI valuations, considering the rapid appreciation in leading tech stocks and the potential for sector-specific corrections, while also identifying second-order beneficiaries within the AI supply chain like memory manufacturers.
• Monitor the Federal Reserve's rate cut trajectory and its impact on market liquidity and growth-oriented sectors, as well as the implications for bond yields and currency movements.
• Reassess portfolio allocations to gold, given its recent correction, as this may signal evolving risk sentiment or inflation expectations in a potentially easing monetary environment.