Stocks rallied hard to start Wednesday, but the enthusiasm quickly faded as market participants looked ahead to tonight's highly anticipated earnings report from Nvidia and tomorrow morning's delayed release of the September jobs report.
At the close, the broader S&P 500 was 0.4% higher at 6,642 and the blue chip Dow Jones Industrial Average had added 0.1% to 46,138 – snapping their four-day losing streaks – while the tech-heavy Nasdaq Composite was up 0.6% at 22,564.
Nvidia's third-quarter results and forward guidance will give Wall Street a better read on demand for artificial intelligence chips, particularly amid growing concerns about an AI bubble.
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While NVDA closed today up 2.9%, the blue chip stock is down more than 8% for the month to date on worries valuations in several mega-cap stocks have become too frothy.
But James Demmert, chief investment officer at Main Street Research, says this "brief reset ... means the stock now has a slightly lower bar to clear post-earnings." Demmert expects "Nvidia to exceed estimates and provide future earnings and revenue guidance that is higher than investors expect."
He adds that it is "unlikely that Nvidia has seen any slowdown in demand for its products, even with increased competition, given how early we are in the AI cycle."
As for concerns over a potential AI bubble, the CIO reminds us that "all technology revolutions create bubble-like stock price performance," and excitement over all things artificial intelligence is currently expanding at a healthy pace.
While valuations are indeed lofty, Demmert says they're still trading at a discount to earnings growth rates, and sentiment has not yet reached the euphoric stage that signals a market top.
You can follow along with all the latest Nvidia earnings news on our live blog.
Semrush soars on Adobe buyout buzz
Elsewhere in the AI space, Creative Cloud parent Adobe (ADBE, -2.0%) said it will buy digital marketing platform Semrush (SEMR) for $1.9 billion in cash, or $12 per SEMR share. This represents a 77.5% premium to the tech stock's Tuesday close – and the announcement sent Semrush shares 74% higher on Wednesday.
"Brand visibility is being reshaped by generative AI, and brands that don't embrace this new opportunity risk losing relevance and revenue," said Anil Chakravarthy, president of Adobe's Digital Experience Business, in the press release. "With Semrush, we're unlocking GEO [generative engine optimization] for marketers as a new growth channel alongside their SEO, driving more visibility, customer engagement and conversions across the ecosystem."
William Blair analyst Jake Roberge reiterated his Outperform (Buy) rating on Adobe stock earlier this week.
"While recent competitive noise and seat growth questions in the creative ecosystem have added a layer of complexity to the story, we believe Adobe can durably grow earnings at a low- to mid-teens pace over the next two to three years," Roberge wrote in a note to clients. "Therefore, we believe the stock is compelling for long-term shareholders."
The September jobs report will finally be released
In economic news, Wall Street will be tuned into tomorrow morning's release of the September jobs report, which was delayed from its initial October 3 release date due to the record-long government shutdown.
Data released over the summer showed a concerning slowdown in the labor market, which prompted the Federal Reserve to cut interest rates by a quarter-percentage point at both its September and October meetings.
But expectations of a third straight rate cut at the next Fed meeting in December have declined in recent weeks amid a lack of concrete economic data. And today's release of the minutes from the October Fed meeting shows central bank officials were split on any additional rate cuts this year.
"Several participants assessed that a further lowering of the target range for the federal funds rate could well be appropriate in December if the economy evolved about as they expected over the coming intermeeting period," the minutes stated (PDF). "Many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year."
As of November 19, CME Group FedWatch assigns a 34% chance the Fed will cut rates in December, down from 94% one month ago.
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