Investors significantly increased their investments in technology stocks following the Federal Reserve’s recent decision to cut its benchmark interest rate for the first time since 2020.
Leading the surge was a 7.4% increase in Tesla’s shares and a 4% rise in Nvidia’s shares, propelling the Nasdaq to a 2.5% gain on Thursday—its fourth-largest rally of 2024. The year’s largest gain for the technology-driven index was a 3% increase on February 22.
The reduction in interest rates benefits technology stocks by lowering borrowing costs and bond yields, making riskier investments more attractive. In addition to the central bank’s half-point reduction, the Federal Open Market Committee indicated through its “dot plot” the possibility of further reductions amounting to 50 basis points by the end of the year, eventually resulting in a total reduction of 2 percentage points.
The Nasdaq had been steadily rising throughout the year, buoyed by Nvidia and enthusiasm around artificial intelligence. Thursday’s rally elevated the benchmark to its highest level since mid-July. Having peaked at 18,647.45 on July 10, the Nasdaq closed at 18,013.98, just 3.5% below its peak.
Nvidia, whose processors are driving the generative AI boom with services like OpenAI’s ChatGPT, saw a 4% increase in its share price to $117.87. The company’s shares have risen by approximately 138% this year, following a tripling in 2023, although they remain 13% below their all-time high reached in June.
Nvidia relies heavily on a small group of customers, which includes Microsoft, Meta, Alphabet, Amazon, Oracle, and OpenAI. These companies are either developing large language models, hosting significant AI workloads, or both. Any signs of reduced demand can raise concerns around Nvidia’s stock. However, lower rates are viewed as potentially beneficial.
Other chipmakers like Advanced Micro Devices (AMD) and Broadcom also experienced significant rallies, gaining 5.7% and 3.9%, respectively. AMD is attempting to challenge Nvidia in the AI market but remains behind and faces some skepticism on Wall Street. The stock is up about 6% this year.
AMD CEO Lisa Su noted in an interview with CNBC’s Jim Cramer that AI is a long-term endeavor, emphasizing the importance of patience. Su highlighted that technological trends develop over extended periods rather than months. She expressed optimism about AI’s future impact on various sectors, including education and drug development, asserting the essential role of computing in these advancements.
Tesla emerged as the highest gainer among large-cap technology companies on Thursday, with a 7.4% increase. Despite being down nearly 2% for the year, Tesla’s stock has rebounded 72% from its lowest point in April.
Other major technology companies like Apple and Meta also recorded substantial gains, with each rising almost 4%.