A rally in Nvidia Corp. spilled over to semiconductor and tech shares on Thursday and helped broad U.S. markets extend gains as the chipmaker pledged this week to invest in the expansion of its core business. Nvidia soared nearly 10%, the biggest gainer in the S&P 500 Index, as the company told investors its priority is to use cash to expand its business instead of buying back its own stock — helping buoy investor sentiment on the outlook for chipmakers. The jump was the biggest for the company since November as Intel Corp. and Advanced Micro Devices Inc. each advanced more than 5%.
The gains are a sign that the resilient fundamentals in the technology sector are starting to shine through concerns about macroeconomic factors, according to Emily Roland, co-chief investment strategist at John Hancock Investments.
“The fundamental backdrop remains solid, earnings revisions remain positive, and that’s why we continue to emphasize stocks, and why we think we’re seeing this buy the dip mentality,” she said in an interview.
The Nasdaq 100 Stock Index closed 2.2% higher and has rallied 13% since sinking into a bear market last week. Investors are taking a rosier view of the tech sector’s growth prospects and snapping up shares that have taken a beating this year such as DocuSign Inc. and Datadog Inc. Traders are also turning to megacap stocks like Amazon.com Inc. and Apple Inc., which are up about 15% from last week’s low
The recent rally has occurred alongside a surge in Treasury yields, whose advance has haunted tech stocks in recent months, suggesting that an improving earnings outlook is starting to overshadow concerns about higher borrowing costs, according to Nicholas Colas, co-founder of DataTrek Research LLC.
“Equity investors are more interested in growth than Treasury rates,” he said in an interview. “If you give them a reason for some optimism, these stocks will work pretty well.”
Retail investors were particularly active in Thursday’s session, with Nvidia and AMD among the most purchased stocks by retail customers, according to Fidelity Investments’ data.
Since mid-January, when the fourth-quarter earnings reporting period began, 2022 profit estimates for tech companies in the S&P 500 Index have increased by nearly three percentage points, according to data compiled by Bloomberg Intelligence. By contrast, estimates for the broader benchmark have risen by about one percentage point.