Rollercoaster ride for investors as AI bubble fears return: Nvidia euphoria fades after US jobs data dents rate cut hopes

Stock markets swung wildly yesterday as the respite brought by Nvidia’s blockbuster results proved short-lived – and talk of an artificial intelligence (AI) bubble refused to die down.

On a day of turmoil, shares in Nvidia surged 5 per cent early on in New York before falling back to be 3 per cent down on the day.

The moves were echoed on Wall Street’s main stock market benchmarks with the Nasdaq 100 down 2.4 per cent, having risen more than 2 per cent earlier.

In London, the FTSE 100 closed up 0.2 per cent, or 20.24 points, at 9527.65 after five days of losses, but gains were disappointing considering it was almost 100 points to the good at one point.

The turbulence came after Nvidia posted record-breaking third-quarter revenues of £44billion on Wednesday, up 62 per cent on the same period a year ago.

In one of the most eagerly anticipated updates in recent corporate history, the AI microchip pioneer expects fourth-quarter sales of £50billion, well ahead of forecasts.

AI jitters: On a day of turmoil, shares in Nvidia surged 5% early on in New York before falling back to be 2% down on the day 

Nvidia chief executive Jensen Huang played down fears that AI exuberance was overdone and a reckoning was nigh.

‘There’s been a lot of talk about an AI bubble,’ he said. ‘From our vantage point, we see something very different.’

There was a sense of relief when stock markets opened as the update calmed fears of a major correction – for now. 

But calm soon gave way to fresh nerves, with solid jobs figures from the US casting doubt about the pace of interest rate cuts by the Federal Reserve.

The non-farm payrolls report – originally due on October 3 but delayed by the 43-day US government shutdown – showed 119,000 jobs were created in September. 

That was far stronger than expected by analysts, and Joseph Brusuelas, chief economist at RSM US, said it showed a rate cut ‘is neither prudent nor necessary’ in December.

But unemployment in the US rose to a four-year high of 4.4 per cent – a further headache for investors trying to anticipate the central bank’s next move.

Analysts warned of further nervousness in February. ‘This situation is fine for now, but what happens in three months’ time when the market waits with bated breath for Nvidia’s next quarterly earnings update?’ said Dan Coatsworth, head of markets at AJ Bell.

‘Even though profits and cash flow remain as healthy as an ultramarathon runner, there are some red flags to consider.’

Gilt yields soar on £300bn borrowing binge woe 

Government borrowing costs rose as investors braced for Rachel Reeves to unleash a £300billion binge.

In a blow to Rachel Reeves as she thrashes out final details of the Budget, the benchmark ten-year gilt yield climbed to 4.62 per cent, the highest since mid-October.

Yield is a key measure of how much the state pays investors who lend it money by buying bonds – debt known as gilts in the UK.

Bond traders surveyed by Bloomberg are expecting an extra £9billion of debt to be raised this year through the selling of extra gilts, lifting sales for the year to £308billion – the highest level since 2021 during the pandemic.

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