CNBC Daily Open: Nvidia shares soar on AI boom

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Nvidia soars, results top expectations
Shares of Nvidia rose more than 7%, topping $1,000 for the first time, in extended trading after its first-quarter earnings and sales beat analysts’ expectations. The chipmaker expects second-quarter sales of $28 billion, compared with estimates of $26.6 billion. The company plans to split its stock 10 for 1.

Wall Street sinks on inflation fears
The Dow Jones Industrial Average plunged more than 200 points, marking its worst day so far this month as minutes of the Federal Reserve’s latest meeting stoked concerns about sticky inflation. The S&P 500 and the Nasdaq Composite also lost ground. Treasury yields inched higher as the prospect of rate cuts was pushed further out. Oil prices fell for the third consecutive day ahead of an OPEC meeting. 

Fed inflation worries
Minutes of the Federal Reserve’s latest rate-setting meeting showed the central bank was concerned about the “lack of progress” in bringing inflation closer to its 2% target. The minutes also revealed that “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.” The Fed policymakers maintained the benchmark borrowing rate within the 5.25%-5.5% range.

Dimon: U.S. could see ‘hard landing’
JPMorgan Chase‘s CEO Jamie Dimon said the U.S. economy could see a “hard landing” and the worst outcome could be “stagflation.” When asked by CNBC’s Sri Jegarajah about the prospect of a hard landing, Dimon replied: “Could we actually see one? Of course, how could anyone who reads history say there’s no chance?” 

Asia-Pacific markets mixed
Hong Kong’s Hang Seng led losses as data center operator GDS Holdings posted a net loss. Its shares tumbled 12%. Mainland China’s CSI 300 index dropped 0.9%. Japan’s Nikkei 225 rose 1.1% as its manufacturing activity expanded for the first time in a year and services continued to grow in May. South Korea’s Kospi rose 0.3% after the central bank held interest rates at 3.5%, as was expected. Australia’s S&P/ASX 200 fell 0.4% as business activity grew at its slowest rate in three months.

[PRO] Under-the-radar AI plays
Hedge funds are loading up on these lesser-known beneficiaries from the artificial intelligence boom while cutting back on their exposure to mega caps, according to Goldman Sachs. The Wall Street investment bank analyzed the holdings of 707 hedge funds with $2.7 trillion of gross equity positions at the start of the second quarter.

There were two major announcements after the markets closed on Wednesday. Prime Minister Rishi Sunak of the United Kingdom, the world’s sixth-largest economy with a GDP of about $3 trillion, called a general election, which barely had any market impact. The pound was largely unchanged. The second was from a 31-year-old graphics chip company valued at $2.3 trillion, Nvidia, which delivered its much-anticipated earnings — and saw its shares soar to record highs. 

There were expectations of a $200 billion swing one way or the other in the company’s stock, depending on the outcome of its earnings. In after-hours trading, the stock rose more than 7%. Nvidia’s shares are up 92% this year and 200% over the last 12 months. Nvidia is the bedrock of the artificial intelligence revolution, with Google, Amazon, Meta, and Microsoft estimated to be spending $200 billion buying up its AI chips.

“The next industrial revolution has begun,” Chief Executive Officer Jensen Huang said in a statement. “We are poised for our next wave of growth.”

Dan Niles, founder of Niles Investment Management, has likened Nvidia to Cisco in the 1990s. Cisco was the go-to company for internet gear. From 1994 to its peak in 2000, Cisco’s shares rose 4000%. Niles believes Nvidia will go through a similar cycle.

“We’re still really early in the AI build,” Niles told CNBC’s “Money Matters” on Monday. “I think the revenue will go up three to four times from current levels over the next three to four years, and I think the stock goes with it.”

“If you look at today for the AI build-out, who’s really driving that?” Niles said. “It’s the most profitable companies on the planet — it’s Microsoft, it’s Google, it’s Meta, and they’re driving this.”

Crucially, Nvidia said it expects second-quarter sales to soar to $28 billion, up from the $26.6 billion analysts were expecting. Even with the prospects of increased competition from Advanced Micro Devices and Google building its own custom chip, Piper Sandler analysts expect Nvidia to keep at least 75% of the AI accelerator market.

Nvidia’s done everything that’s been asked of it, now it’s over to Wall Street to decide if it’s time to crack through more milestones or consolidate.

— CNBC’s Kif Leswing, Jeff Cox, Kate Rooney, Hakyung Kim, Lisa Kailia Han, Yun Li and Rohan Goswami contributed to this report.