Nvidia Lifts AI Trade, But Sustainability Concerns Remain

Nvidia's recent forecast has rescued the AI trade, but investors are not yet convinced that the boom will last. The company expects revenue to grow by around 70% in fiscal 2028 and reports unconstrained demand for its 2027 products is above 100%. This news has lifted Nvidia's market value by $442 billion.

The AI trade had been struggling with questions about whether companies were simply buying computing capacity because they feared being left behind, rather than having a clear business model. However, Nvidia's forecast suggests that demand for its chips remains strong.

The surge in Nvidia's stock has not lifted the entire market, however. Ten of the eleven S&P 500 sectors declined, with technology stocks doing most of the heavy lifting. The software sector, which had been seen as being threatened by AI, has begun to show signs of life again, with companies like Salesforce and CrowdStrike reporting strong results.

The question remains whether the spending required to sustain the next phase of the AI boom will generate enough revenue to justify it. Nvidia can show that its customers are still buying, but it cannot force every company across the economy to divert free cash flow into another capital-expenditure cycle.