Artificial intelligence chipmakers Nvidia (NVDA) and Advanced Micro Devices (AMD) led the rally in tech stocks on Thursday following the Federal Reserve’s sizable 50-basis-point interest rate cut. Nvidia shares rose more than 5%, while rival Advanced Micro Devices rose as much as 7% in afternoon trading.
Rising stock prices show that investors are absorbing (and believing) Federal Reserve Chairman Jerome Powell’s message that the U.S. economy is “in good shape.” The tech-heavy Nasdaq (^IXIC) led the stock market’s upward trajectory. The index rose 2.7%, while the S&P 500 (^GSPC) gained 1.8% and the Dow (^DJI) gained 1.3%.
All seven of the big tech stocks, known as the “Magnificent Seven,” posted gains. Meta (META) stock rose 4%; Apple (AAPL) rose 3.7%. Amazon (AMZN), Google (GOOG) and Microsoft (MSFT) all rose nearly 2%. But the semiconductor subsector of the tech industry was one of the biggest gainers. The PHLX Semiconductor Sector Index (SOX) rose nearly 5%.
Nvidia’s surge is welcome news for investors who have watched the stock’s roller coaster ride in recent weeks. The chipmaker’s shares fell after the company reported its fiscal second-quarter earnings in late August, beating Wall Street expectations but narrowing its full-year gross margin projection.
The stock fell further following news that the Justice Department had sent subpoenas to Nvidia as the agency stepped up its antitrust investigation of the company. But it rose again after CEO Jensen Huang convinced investors that artificial intelligence is profitable for investors during a Goldman Sachs conference last week, and big names such as Oracle CTO Larry Ellison and Elon Musk reportedly “begged” for more Nvidia AI chips.
And while Nvidia’s share price may be down 12% from three months ago, it’s up a staggering 172% from this time last year. The semiconductor superpower has continued to benefit from the rise of AI, which is proving to be more than just a fad.
While Nvidia dominates the AI hardware market, AMD is also a major beneficiary of the wave of AI innovation. While the stock has seen ups and downs over the past year and is down from all-time highs in March, the stock is up nearly 55% over the past year.
At the end of June, AMD announced that its second-quarter profits were up nearly 20% year-over-year. The company will announce its third-quarter results at the end of October.
The semiconductor sector’s strong day is a bright spot at a time when it faces uncertainty from the ever-closer US presidential election. Tough stances by both presidential candidates on China would be bad news for US chip companies like Nvidia. The Biden administration has implemented strict export controls that prohibit Chinese companies from buying chips directly from Nvidia and AMD in 2022.
Earlier this month, the US introduced new restrictions on semiconductor and quantum computing exports. Meanwhile, Nvidia is working on a custom chip for Chinese customers that would comply with current trade restrictions.
And despite an upbeat day, Citi’s head of U.S. equity strategy, Scott Chronert, warned that the rise in tech stocks is slowing and that investors should adopt a barbell strategy.
“What we’re focused on from this standpoint is that we want to own those stocks, but when you look at the rate of increase in earnings expectations this year and next year, it’s been a step function for over a year,” he told Yahoo Finance on Thursday. “It’s starting to slow down.”
Laura Bratton is a reporter for Yahoo Finance.
Click here for the latest stock market news and in-depth analysis, including stock-moving events.
Read the latest financial and business news from Yahoo Finance