Nvidia Rises While Boeing Hits Turbulence

On the first trading day of the second week of January, some Wall Street investors pushed the values of several key Indices upward over the course of the day. Although the lack of a ‘Santa Claus’ rally to close out 2023 may have disappointed some market watchers, yesterday’s trading trends broke the falls seen at the end of last week. However, the picture was not all rosy. Let’s take a closer look at two stocks in particular that saw large shifts in value yesterday.

NVIDIA Helps Buoy Nasdaq

The tech-heavy Nasdaq (US-Tech 100) Index saw a 2.2% gain in value yesterday, while the S&P 500 (USA 500) and the Dow Jones Industrial Average (USA 30) saw jumps of 1.4% and almost 0.6% respectively. With the Nasdaq having come out ahead in yesterday’s trading, one firm in particular was among the leaders of the pack.

Nvidia's recent surge in stock value, climbing 6.4% to hit its highest closing price since November 20, was fueled by expanded partnerships in drug discovery and upcoming chip releases at the CES conference. These announcements, featuring collaborations with Amgen (AMGN) and Recursion Pharmaceuticals and the unveiling of a generative Artificial Intelligence (AI) platform for drug discovery, sparked a significant market response. In addition, the anticipation surrounding Nvidia's launch of three new graphics-processing units—RTX 4080 Super, 4070 Ti Super, and 4070 Super—added to this momentum, propelling the stock beyond its previous record close.

This impressive climb pushed Nvidia's (NVDA) market capitalization to an astounding $1.28 trillion, a substantial increase from its 2022 year-end valuation of $360.7 billion, cementing its position among the highest-valued firms in its sector, as one of only five companies commanding a 13-digit market cap.

Moreover, fresh from a year marked by exponential growth, Nvidia strategically announced new initiatives in gaming and automotive technology Monday, ahead of CES in Las Vegas. These efforts emphasize generative AI, a crucial factor propelling Nvidia's transformation into a household name. The company introduced GeForce graphic processors tailored for AI-focused PCs and laptops, alongside an expansion of its automated-driving system to additional electric vehicle (EV) manufacturers.

Despite a 4% pre-CES surge in share price driven by positive momentum in tech stocks, Nvidia's remarkable expansion in data-centre capabilities, especially in genAI, may overshadow its historically dominant gaming and automotive segments, which are expected to contribute only about 19% to fiscal 2024 revenue. On the other hand, the data-centre business’s sales are projected to reach nearly $78 billion in fiscal 2025.

What’s Next for Nvidia?

While facing competition, Nvidia maintains leadership in AI computing. However, investors grapple with valuing a company now valued at almost $1.3 trillion, double the worth of its closest chip-making competitor, TSMC (TSM). Wall Street underscores bottom-line growth and cash flow, anticipating a 55% revenue increase in the upcoming fiscal year after a 118% surge in the current year. Nvidia's rising profitability, driven by the necessity of its AI chips for genAI services, forecasts annual adjusted per-share earnings (EPS) exceeding $20 in fiscal 2025, more than six times its latest fiscal year's earnings.

Despite its substantial surge, Nvidia appears relatively cheaper compared to its earnings projection, trading at around 26 times projected per-share earnings. It also generates substantial cash flow, potentially accumulating $100 billion in free cash flow by 2025, allowing for growth, mergers, and acquisitions.

Challenges such as geopolitical complexities and market restrictions persist, but Nvidia's stronghold in domestic AI demand hints at a promising future. As a trillion-dollar chip giant, the company's trajectory seems far from its peak, supported by robust cash flow and strategic growth prospects.

Boeing Veers Off-Course

At the other end of the leaderboards, venerable aviation giant Boeing (BA) slipped nearly 8% over the course of the trading day Monday. The proximate cause for the firm’s turbulence on the trading floors of New York City seems to have been a serious aircraft malfunction involving a Boeing-manufactured plane. 

Multiple airlines have grounded their Boeing 737 Max 9 aircraft following an incident Friday where part of a jet tore away during an Alaska Airlines (ALK) flight. Despite potential safety concerns and implications for Boeing's reputation, analysts are downplaying the potential immediate financial impacts on the jet manufacturer, citing Boeing's position as one of two major players in aircraft production, alongside Airbus (AIR.DE).

The incident occurred when a panel on the jet blew out roughly 10 minutes into Alaska Airlines Flight 1282 at 16,000 feet, prompting the Federal Aviation Administration to temporarily ground 171 Boeing 737 Max 9 planes.

However, some analysts maintained a positive outlook on Boeing's stock, suggesting that these incidents may not significantly impact near-term financials due to the industry's “duopoly nature” and limited immediate effects while investigations continue. Bank of America (BAC) analysts highlighted potential long-term implications for public confidence, cautioning that continued issues might impact sales.

Uncertainty lingers around the cause of the incident, whether it was an assembly mistake at Boeing, an installation error by fuselage maker Spirit AeroSystems (SPR), or oversight from regulators. Spirit AeroSystems' stock also faced a decline of over 11%.

While analysts at William Blair didn't anticipate a major financial impact on Boeing, they acknowledged potential modest impacts on deliveries for the first quarter, estimating that the Max 9 constituted less than one-fifth of Boeing's recent deliveries.

Ravi Shanker, an analyst at Morgan Stanley (MS), says that the Q1 results for the firms United Airlines (UAL) and Alaska Air also stand to feel the aftereffects of January 6th’s aviation failure. Meanwhile, other airlines grounded their Max 9 planes as a precaution.

Furthermore, regulatory bodies in the European Union as well as other companies in the sector have kept their 737 Max 9’s out of the air until such time as they can pass inspection. Some major airlines, including American Airlines (AAL) and Southwest Airlines (LUV) don't have the 737 Max 9 in their fleets, potentially limiting the broader impact on the aviation industry. (Source: Market Watch)

Conclusion

All in all, an interesting year seems to be developing as the directions in which traders push major Indices change in tandem with economic shifts. Market watchers will have to wait and see whether the recent trajectories set by Boeing or Nvidia gain dominance over the market as a whole.