- US Consumer Price Index comes in at 7.1% for November, fifth straight reduction.
- NVDA stock has rallied 6.5% on the news in Tuesday's premarket.
- Citi thinks Nvidia may be top benefactor of AI investment after ChatGPT.
- NASDAQ, S&P 500, Dow Jones futures jump 0.7%
Nvidia (NVDA) stock has jumped more than 6% in Tuesday's premarket after the United States Consumer Price Index (CPI) data showed inflation dropping more quickly than thought. Wall Street consensus had expected the November CPI to come in at 7.3% YoY. Instead, it showed up at 7.1%. This welcome bit of news has led the S&P 500, NASDAQ and Dow futures to all rally more than 0.7% as it is another sign in favor of the Federal Reserve (Fed) ending its interest rate hikes sooner rather than later.
Nvidia stock news: A CPI to raise all boats
With the CPI undershooting inflation, Nvidia is one of the top stocks to benefit from the possibility the Fed will cut its terminal rate and produce a happier dot plot at the Federal Open Market Committee (FOMC) Meeting on Wednesday. Already markets are expecting the steady drumbeat of 75 basis point hikes over the past four meetings to be arrested by a 50 basis point raise this month. Since peaking at 9.1% back in June, headline inflation has fallen for five consecutive months.
Headline YoY CPI inflation is highlighted in yellow
Before the downturn in 2022, Nvidia was regularly reporting YoY revenue growth above 50%. This was quite impressive for a company as large and mature as Nvidia, and its share price soared based on the market's perception of future profits. Since those profits are discounted by interest rates, typically the 10-year US treasury bond, the Fed's higher interest rates this year have reduced the value of those future profits and thus the NVDA share price.
Nvidia has also borne the brunt of the decline in the prospects of crypto miners, who used Nvidia's GPUs as the main ingredient in their massive operations. Additionally, 2021's semiconductor shortage has given way to 2022's semiconductor inventory pile-up. However, the possibility that there is light at the end of this interest rate tunnel is enough to inject bulls with those animal spirits.
NVDA stock news: ChatGPT provides AI optimism, China's challenges US chip export ban
Analyst Atif Malik at Citi put out a note on Tuesday wondering aloud if all the excitement over the newly-released ChatGPT AI bot could build a wave of investment in AI-specialized chips made by Nvidia. The AI chatbot, released just two weeks ago by OpenAI, has been turning heads around the world as folks discover that it can carry out just about any task. Below a user asked ChatGPT to write a song about Tesla CEO Elon Musk in the style of Bob Dylan.
“We believe the GPT-3 language model complexity with 175B parameters or 100x larger than prior GPT-2 model provides a significant breakthrough in natural language conversation/text completion and can lend itself to many applications including search,” wrote Malik, who noted that clients are wondering if ChatGPT could soon set up an arms race with Alphabet's (GOOGL) Google search engine.
Nvidia recently released the H100 “Hopper” Tensor Core GPU, which can specifically be used in natural language model AIs like ChatGPT. However, the US government banned Nvidia from shipping its H100 product and all other advanced AI chips to China this fall. Not so fast though!
China is now challenging this ban at the World Trade Organization (WTO). If China wins this battle, it would be good news for Nvidia shareholders. First, Nvidia would be able to sell literally billions of dollars of these chips to the world's second-largest economy. Secondly, it might forestall China from spending what Reuters reports could be $143 billion in aid to its domestic semiconductor industry. That is about three times the size of the Biden administration's CHIPS Act.
Nvidia stock forecast
Nvidia stock has been in a rally since October 13. Now the only main resistance zone standing in its way is the $190 to $192 region that pushed back against NVDA rallies in June and August. A close on the daily chart above here would leave bulls elated. Likely they would grow the confidence necessary to shoot for the next major area of resistance at $225 from back in April. Expect the 21-day moving average, currently at $164.37, to provide support in the case of a pullback.
Nvidia 1-day stock chart