Nvidia chip frenzy drives markets to new heights

Today’s top stories

• Prime Minister Benjamin Netanyahu unveiled Israel’s plans for Gaza after hostilities end in the enclave with a formal proposal that directly contradicts the objectives of the US. The one-page document makes no mention of any role for the Palestinian Authority, the West Bank-based rival to Hamas that the Biden administration wants to see take over control, and rejects international steps towards recognition of a Palestinian state.

• The US issued more than 500 new sanctions on Russia in response to the death of opposition activist Alexei Navalny and on the eve of the two-year anniversary of the full-scale invasion of Ukraine. Some are concerned that EU sanctions have not been enforced strongly enough.

• A McKinsey-led think-tank advised China on policy that fed tensions with the US, including how to deepen co-operation between business and the military and push foreign companies out of sensitive industries.

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Good evening.

What a week that was! Stock markets across the world hit record highs over the last few days after bumper results from Nvidia turbocharged tech stocks and sparked a wider rally.

The US chip company on Wednesday reported a 265 per cent jump in quarterly revenues and said even stronger sales were on the way thanks to the spending frenzy on artificial intelligence. “Accelerated computing and generative AI have hit the tipping point,” said Nvidia’s founder and chief executive Jensen Huang. “Demand is surging worldwide across companies, industries and nations.”

The company, which has become a proxy for AI demand, makes the chips that have become the industry standard for crunching data for the large language models used in generative AI, powering chatbots and other software that can produce information in the form of text, images and video.

The results sent Nvidia’s shares surging, propelling it above Amazon and Google’s parent Alphabet to become the third most valuable US-listed company behind Microsoft and Apple. The surge continued today as its market capitalisation passed the $2tn level. The boost from its earnings helped push the S&P 500 index and the tech-heavy Nasdaq Composite to new highs.

The ripples spread far beyond the US. Chip fever also helped the Nikkei 225, Japan’s main stock market index, hit an all-time high, beating the previous record set during the 1980s asset bubble, while the Stoxx Europe 600, the region’s main index, also reached new heights.

Tech fever aside, the rallies have also underlined another common theme in global markets: the growing influence of a small group of companies in propelling the wider market forward. The US has its “Magnificent Seven” tech stocks, Japan has its “Seven Samurai” and Europe has the “Granolas”: GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP and Sanofi. (Nicknames courtesy of Goldman Sachs.)

Back in the world of computer chips, Nvidia’s earnings show the strength of spending on infrastructure by companies and countries determined not to be left behind while AI is still in development, says the Lex column (for Premium subscribers). 

For now, the company looks untouchable but the landscape could change once the three big cloud companies — Microsoft, Amazon and Google — ramp up use of their own chips and rivals, such as AMD, catch up with Nvidia’s advanced technology. A contender from Europe, Besi, is also coming up on the rails. Meanwhile Open AI, the Microsoft-backed start-up that has become one of the fastest-growing companies in history, is looking to secure its own pipeline of semiconductors to lower its costs and reduce its dependence on Nvidia.

Geopolitical concerns are also driving activity in the sector, especially in the US. Intel this week announced it would make high-end semiconductors for Microsoft in an attempt to compete with Taiwan’s TSMC and South Korea’s Samsung and “rebuild western manufacturing at scale”.

Need to know: UK and Europe economy

The UK’s household energy price cap will fall 12 per cent in April to £1,690 a year, following a drop in wholesale gas and electricity prices. The fall will help the government’s efforts to fight inflation but prices remain well above typical levels before the energy crisis that began in the winter of 2021.

UK business activity expanded more than expected in February, raising hopes that Britain’s recession could already be over, according to new S&P Global PMI survey data, a measure of the health of the private sector. Consumer confidence fell in February but Prime Minister Rishi Sunak said today that the public was beginning to see the “green shoots” of economic recovery.

The PMI data was also encouraging for the eurozone, suggesting the economic downturn was easing, although German business activity remains in the doldrums, a trend underlined in this morning’s Ifo survey of business confidence. Germany’s ruling coalition is split over how best to resolve the economic gloom.

The European Central Bank made its first loss since 2004 thanks to the impact of higher interest costs. The €1.3bn annual deficit will be offset against future profits for the first time in its history. Germany’s Bundesbank also has a deficit problem, burning through more than €20bn to cover huge losses.

European capitals are racing to find $1.5bn in emergency military funding for Ukraine to compensate for the congressional deadlock on US aid and delays in European production.

Need to know: Global economy

China’s Communist party sharpened its rhetoric towards Taiwan, increasing the pressure on newly elected president Lai Ching-te as he prepares to take office. A senior official said Beijing “must resolutely fight ‘Taiwan independence’ separatism”.

Financial markets finally seem to be falling into line with the Federal Reserve’s outlook for US interest rates, as investors dial back their expectations on extensive cuts this year. Minutes from the last Fed policy meeting revealed policymakers remained “highly attentive” to the risk of resurgent inflation.

Is it still the economy, stupid? Commentator Martin Sandbu tries to unpick why the US president is failing to get recognised for the success of “Bidenomics”. Is it because people “dare not believe that the all-too-rare case of an ultimate establishment figure belatedly committed to radical reform can be for real?” S&P upgraded its forecast for US gross domestic product.

The UN shipping chief warned that ships diverted from the Red Sea and Suez Canal were at risk from hijackings. The disruption to trade has highlighted the fragility of globalisation and the smooth production and transport of consumer goods from the global south to Europe and the US, writes columnist John Gapper.

Pakistan’s traditional parties have unveiled a new coalition government, breaking a two-week impasse following elections, but the administration will be quickly tested by the country’s dire economic circumstances: here’s our overview in charts.

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Need to know: business

Food industry groups warned that UK plans to use “not for EU” labelling on meat and dairy products would raise costs and deter investment in domestic production.

Google paused its latest artificial intelligence model, Gemini, from generating images of people over concerns at its depiction of different ethnicities and genders. Some users had complained that overcorrection towards creating images of women and people of colour had led to historical inaccuracies.

Thousands of Iranians were caught out by a cut-price Apple iPhone scam after a company used celebrities to sell the coveted items supposedly at half-price but which never materialised.

Europe’s defence industry is booming thanks to war in Ukraine and tensions in the Middle East and elsewhere. Global defence spending hit a record $2.2tn last year, while in Europe it rose to $388bn, levels not seen since the cold war. Here are the companies benefiting from the new environment.

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Science round up

A commercial space flight successfully landed on the Moon for the first time, heralding a new era of private lunar exploration. The US-based Intuitive Machines’ unmanned Odysseus lander was paid $118mn by Nasa to carry six scientific payloads, including instruments to observe space weather and a radio beacon to aid navigation. Architects and engineers meanwhile are starting to imagine what a manned lunar base might look like.

An antiviral protein has been found to be an important indicator of long Covid, raising hopes of a possible therapy for sufferers who report extreme fatigue.

Scientists have discovered a new form of magnetism that could lead to more energy-efficient computing. With data centres thought to account for about 1 per cent of global electricity consumption, even a modest improvement could have a large environmental impact, writes Anjana Ahuja. 

Geologists are getting excited about prospects for “gold hydrogen”: hydrogen generated naturally within Earth, a much cleaner and cheaper variety than existing “blue” or “green” variants.

The UK must be more strategic in how it funds science, according to John Bell, the former government adviser and head of a new research institute, as ministers pursue their goal of making the country a “science superpower” by 2030. The Cancer Research charity warned the UK was missing out on a “golden age” of drug discovery.

Some good news

A British food company has opened what it says is the world’s most advanced vertical farm, using 100 per cent renewable energy to grow crops.