NVDA stock hits new highs on the back of low US inflation and Recursion deal
- NVDA advanced 3.5% on Wednesday.
- Nvidia invested in biotech firm Recursion that uses AI technology.
- NASDAQ 100 rebalancing will cause major selling of NVDA stock.
- June CPI is clearly bullish for NVDA and the general market.
- Nvidia stock reaches new all-time high in Thursday premarket.
Nvidia (NVDA) stock added more than 2% in Thursday’s morning session to $449.93 – a new all-time high – although the advance had sagged a bit by the time of writing. Wednesday’s lower inflation results have made the market as a whole more optimistic, and after that news NVDA stock locked in a 3.5% gain on the day.
Nvidia’s investment in Recursion has also excited investors as it appears to be a newer utilization of artificial intelligence (AI) on Nvidia’s platform. Additionally, SoftBank has courted Nvidia to become an anchor investor in the coming Arm IPO. Nvidia attempted to acquire Arm two years ago. The NASDAQ Composite has increased by 1% in the first half-hour of trading.
Nvidia stock news: Recursion investment excites, but NASDAQ 100 rebalance spells selling pressure
Nvidia announced an interesting $50 million investment in biotech firm Recursion Pharmaceuticals (RXRX) on Wednesday. The company will utilize Nvidia’s AI-primed cloud platform to train new AI models for drug discovery. Recursion has 23 petabytes of data sets involving biology and chemistry. The firm already debuted the BioNeMo platform earlier this year that uses generative AI technology to study possible drug creations.
Recursion stock soared more than 78% on the news of the investment, which was structured as a private investment in public equity (or PIPE) deal.
The flipside of the current scenario for Nvidia stock is that the leadership behind the NASDAQ 100 has announced that it will rebalance its index in order to reduce its reliance on the Magnificent Seven stocks. These are Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Tesla (TSLA), Meta Platforms (META) and, of course, Nvidia.
Due to the extreme outperformance of these stock in the first half of 2023, they now take up between 48% and 55% of the index weighting. Though details of the rebalancing will not be announced until this Friday, Wells Fargo believes these seven will be reduced to a 40% combined weighting.
Nvidia currently makes up 7.04% of the NASDAQ 100, and reducing its weighting in one of the most popular indices will mean that many passive index fund managers will need to sell off a large amount of NVDA stock in a short period of time. The new rebalancing will go into effect during the July 24 session in less than two weeks.
Curtailed inflation still positive news
The Bureau of Labor Statistics released the Consumer Price Index (CPI) for June on Wednesday morning. The fact that YoY core inflation dropped from 5.3% in May to 4.8% in June delighted growth stock investors especially, as well as the broad market. Slowing inflation means the Federal Reserve is less likely to raise interest rates in the future and might be quicker to cut rates earlier than expected.
Still, the vast majority of observers think the central bank will raise interest rates by 25 basis points at its meeting on July 26, but there is less consensus about future hikes.
“We do not have strong conviction on what the Fed is likely to do in September and beyond,” wrote economist Thomas Simons of Jefferies on Wednesday.
Nasdaq FAQs
The Nasdaq is a stock exchange based in the US that started out life as an electronic stock quotation machine. At first, the Nasdaq only provided quotations for over-the-counter (OTC) stocks but later it became an exchange too. By 1991, the Nasdaq had grown to account for 46% of the entire US securities’ market. In 1998, it became the first stock exchange in the US to provide online trading. The Nasdaq also produces several indices, the most comprehensive of which is the Nasdaq Composite representing all 2,500-plus stocks on the Nasdaq, and the Nasdaq 100.
The Nasdaq 100 is a large-cap index made up of 100 non-financial companies from the Nasdaq stock exchange. Although it only includes a fraction of the thousands of stocks in the Nasdaq, it accounts for over 90% of the movement. The influence of each company on the index is market-cap weighted. The Nasdaq 100 includes companies with a significant focus on technology although it also encompasses companies from other industries and from outside the US. The average annual return of the Nasdaq 100 has been 17.23% since 1986.
There are a number of ways to trade the Nasdaq 100. Most retail brokers and spread betting platforms offer bets using Contracts for Difference (CFD). For longer-term investors, Exchange-Traded Funds (ETFs) trade like shares that mimic the movement of the index without the investor needing to buy all 100 constituent companies. An example ETF is the Invesco QQQ Trust (QQQ). Nasdaq 100 futures contracts allow traders to speculate on the future direction of the index. Options provide the right, but not the obligation, to buy or sell the Nasdaq 100 at a specific price (strike price) in the future.
Many different factors drive the Nasdaq 100 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the Nasdaq 100 as it affects the cost of credit, on which many corporations are heavily reliant. As such the level of inflation can be a major driver too as well as other metrics which impact on the decisions of the Fed.