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AI Revolution Takes Flight: Microsoft and Nvidia Stocks Skyrocket Amid OpenAI Leadership Chaos

Last Updated November 22, 2023 2:55 PM
Giuseppe Ciccomascolo
Last Updated November 22, 2023 2:55 PM
Key Takeaways
  • The AI industry is in a state of flux due to recent leadership chaos at OpenAI.
  • Microsoft and Nvidia stocks have skyrocketed.
  • Nvidia also published earnings that beat consensus.
  • But will MSFT and NVDA stocks continue to rise?

The artificial intelligence (AI) industry is in a state of flux, with recent events at OpenAI throwing the leadership of the company into question.

Amidst this uncertainty, rivals in the AI environment like Microsoft and Nvidia stocks have skyrocketed as investors bet on these two tech giants to take advantage of the chaos and emerge as the new leaders in AI.

Microsoft has a huge investment in OpenAI but is also developing an AI product, while Nvidia is growing in this sector, aiming to hire more talents to help build a primary role in AI.

After all the turmoil on OpenAI top executives and Nvidia earnings, are MSFT and NVDA stocks continuing their uptrends?

OpenAI Turmoil Had No Impact On Stocks

Sam Altman, co-founder and CEO of OpenAI and a notable figure in the artificial intelligence field, recently faced a series of turbulent events.

On Friday, November 17, 2023, Altman was initially dismissed by the company’s board following a review that revealed inconsistencies in his transparent communication, impeding the board’s ability to fulfill its responsibilities.

As a consequence, the board expressed a lack of confidence in Altman’s leadership.

After Altman’s departure, OpenAI‘s chairmam and Altman’s ally, Greg Brockman, resigned, along with three senior researchers. Subsequently, reports indicated that they, along with potentially hundreds of OpenAI employees, would be joining Altman at Microsoft.

Altman was swiftly recruited by Microsoft to lead a new AI effort. But he later was re-hired by OpenAI, which now also has a new board.

How Did MSFT and NVDA Stock React?

Microsoft (MSFT) stock initially rose in the days following the OpenAI leadership turmoil. On November 20, 2023, the day Microsoft announced that it had hired ousted OpenAI CEO, Sam Altman, and other key staff, MSFT stock closed up by 2.5% at $375.71. The stock continued to stay high despite a slight pullback in the following days, reaching  $373,07 on November 23, 2023.

Nvidia stock performance chart
Nvidia stock performance chart
Nvidia (NVDA)  shares also performed well as, on November 20, 2023, its stock closed up 3.21% at $504.20. The stock continued to climb in the following days, reaching a high of $499.44 on November 29, 2023.

Nvidia Earnings Beat Estimates

In addition to the race for AI, Nvidia stock is also gaining ground thanks to massive investments in microchips, which have led to record quarterly results.

On Tuesday, November 21, 2023, Nvidia announced a significantly better-than-expected outlook, surpassing analyst consensus reported by CNN Business , as third-quarter profits and revenue exceeded projections.

The Santa Clara, California-based chipmaker reported that non-GAAP diluted earnings per share in the third financial quarter ending October 29 surged by 49% to $4.02, up from $2.70 in the second quarter and a substantial increase from $0.58 a year earlier. This marked a significant outperformance compared to analyst forecasts, which had a consensus of $2.28, ranging from $2.06 to $2.71.

Revenue saw a remarkable 34% increase, reaching $18.12 billion compared to $13.51 billion in the previous quarter and tripling from $5.93 billion a year ago. This exceeded the consensus forecast of $12.2 billion by 50%, with estimates ranging from $11.3 billion to $13.7 billion.

Nvidia also announced a quarterly cash dividend of $0.04 per share, payable on December 28.

Highlighting specific achievements, the company noted that third-quarter gaming revenue reached $2.86 billion, marking a 15% increase from the second quarter and an impressive 81% surge from the same period last year.

Looking ahead to the fourth financial quarter, Nvidia anticipates revenue of $20.00 billion, surpassing the analyst forecast consensus of $13.0 billion by 54%, with estimates ranging from $11.1 billion to USD 15.4 billion.

Underlying Business Boosted Returns

Derren Nathan, head of equity research at Hargreaves Lansdown , commenting on Nvidia results, said: “The market leader in Artificial Intelligence has delivered yet another record quarter. And it’s continuing to push the envelope with the recent launch of the H200 representing another step change in the computing power of its most advanced chip. The growth in its market value since Chat GPT first arrived on the scene has been astonishing.”

“The share price has trebled, and the company is now one of a handful over a trillion dollars. But the investment returns have very much been powered by even more impressive growth in the underlying business.”

The high margins commanded by Nvidia’s best-in-class tech and a cautious approach to the cost base are amplifying the effect on the bottom line. The shares have roared ahead on solid fundamentals, and a forward multiple of 30 times is hardly dot com boom territory given the pace of revenue expansion and even faster upward momentum in profits.

But investors are pausing to digest the impact of tightening export controls to China.

“For now, that’s being more than compensated for by booming demand elsewhere but there are concerns there will be more restrictions to follow, which could accelerate local efforts to close the technological gap. But given how high Nvidia set the bar, that won’t be easy.”

Microsoft Rising On The AI Wave

Microsoft’s stock performance has been positively correlated with the company’s progress in artificial intelligence (AI). As Microsoft has invested more heavily in AI research and development, its stock price has generally trended upwards.

There have been several notable instances where Microsoft’s stock price has responded positively to AI-related news. For example, in November 2023, Microsoft’s stock price rose by over 2% after the company announced that it had hired Sam Altman, the former CEO of OpenAI, a leading AI research company. This move was seen as a sign that Microsoft was serious about becoming a leader in AI.

In addition to specific news events, Microsoft’s overall stock performance has also benefited from the broader growth of the AI industry. AI is a rapidly growing market with the potential to revolutionize many industries, and Microsoft is well-positioned to capitalize on this growth.

Overall, there is a strong correlation between Microsoft’s stock performance and the company’s progress in AI. As Microsoft continues to invest in AI and develop new AI-powered products and services, its stock price is likely to continue to rise.

Analysts Reveal Big Tech Q4 Market Outlook

In the first half of the year, tech giants like Apple, Amazon, Meta, Microsoft, Nvidia, and Tesla stole the spotlight- They surpassed the broader market and lifted both the Nasdaq 100 and the S&P 500 to their highest levels in over a year. This resurgence demonstrated the tech sector’s resilience amid uncertainty.

Big Tech valuation
Big Tech valuation

However, as we enter the final quarter, the challenge for these companies lies in sustaining their growth momentum. The divergence in valuations among these tech giants is likely to diminish. And this provides opportunities for both long-term investors and traders, according to Forex.com  analysts.

Tech valuations have moderated in the pullback observed since the start of August. The price-to-earnings ratio of the Nasdaq 100 dropped from over 30 in July to around 25 today.

Over the past three months, all seven companies have witnessed a decline in their valuation multiples. Those with the highest ratios, such as Nvidia and Tesla, have underperformed and experienced the most significant declines. They then narrowed the wide range within the group.

Some Stocks Are Still Too Expensive

While some stocks, like Nvidia, have seen their multiples return to more typical levels, others still appear expensive, considering the challenging outlook and their historical averages, as seen with Tesla.

Apple and Meta entered this earnings season with higher-than-usual valuations but are currently trading below their 5-year averages. In summary, valuations within the group have narrowed recently. This suggests that some stocks remain attractive while others may still have room for adjustment.

Joshua Warner, Market Analyst at Forex.com , commented on how Q4 is looking so far:

“There are reasons to be cautiously upbeat about Big Tech as we head into the final quarter of the year, but markets are becoming increasingly pessimistic about what lies around the corner in 2024 as higher-for-longer interest rates, persistent inflation and a strong but weakening economy all play out.”

Microsoft Nvidia big tech earnings
Wall Street’s view on Big Tech earnings

He said: “The bears have made their presence known in recent months. But they still have more work to do before they push the bulls out entirely. The landscape for equities has become murkier. Visibility is more limited, and there are attractive opportunities elsewhere now that treasury yields have spiked to 16-year highs. 

“The valuation gap among the group of seven Big Tech members means there are challenges and opportunities ahead. Those with the lowest multiples that trade at a discount will become the most attractive when conditions finally improve, while some may have a tougher time justifying their valuations as the outlook becomes increasingly challenging.”

Artificial Intelligence’s Role

AI has emerged as a defining technology in the big tech sector. Unlike past trends like Metaverse and NFTs that generated hype but had limited real-world applications, AI is a lasting force with practical solutions. Although the market might see fluctuations as initial winners recede and new players emerge, AI offers enduring investment opportunities.

AI Market Expert at Forex.com, Matt Weller, said:

“Big tech’s influence on the financial markets is expected to remain strong in the second half of 2023. Investors are advised to stay  vigilant and adapt to ever changing dynamics. Tech stocks typically outperform in good economic conditions but face challenges during downturns, and this trend is likely to continue.”

As we move toward the end of 2023, investors seem to remain flexible, assess risk-reward profiles carefully, and consider the broader economic context when making investment decisions.

“The landscape may have changed dramatically in the past year, but big tech’s enduring size and resilience make it a compelling sector to watch, especially as conditions improve.”

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