AI darling Nvidia surprised Wall Street on Wednesday by accelerating growth after several quarters of sluggish sales and a fourth-quarter forecast that beat expectations.
While relief was evident in stocks around the world on Thursday, even Nvidia’s upbeat results are unlikely to allay worries about a return to earth for high-value tech stocks, amid lingering worries about whether AI spending will pay off.
Global stocks have fallen nearly 3% this month, set for their biggest monthly decline since March, in part on concerns that the rally in tech shares has grown too quickly.
“Concerns around tech will continue and we’re likely to see similar concerns every quarter as markets question concentration,” said Seema Shah, chief global strategist at Principal Global Investors in London.
“That story won’t go away.”
Shah said that while she weighed US stocks, she was also wary of concentration risks and this was one reason she was looking at European stocks.
The results of an AI company are as important as the data print
As investors and analysts say AI is emerging as a so-called mega-trend, earnings results like Nvidia’s have become as key to shaping opinions on the economic outlook as monthly economic releases. The next big dates in the calendar range from upcoming tech earnings to signs of how widely AI is being adopted to justify the expense.
Investors need to prepare for a bumpy ride.
“Investors need to worry about bubble risks,” Mark Heffel, chief investment officer at UBS Global Wealth Management, told reporters on a call Thursday about the 2026 outlook.
The so-called “Magnificent Seven” – which includes Nvidia and Meta – have seen their share prices soar, raising fears about the scale of market exposure to just a few names.
Technology companies have been among the biggest stock market decliners in recent days, though they still have a good year.
The S&P 500 tech sector’s forward price/earnings ratio — a measure of how much a company is worth relative to future earnings — is about 30 times, well above its 10-year average of 22.2.
AI stocks have drawn comparisons to the dotcom boom and bust of the colossal 1990s, when concerns were mounting about debt taken on by tech companies.
Nvidia generated $60 billion in free cash flow over the past 12 months, David Trainor, CEO of investment research firm New Constructs, said in a note. To justify its current stock price, it would need to generate $2.1 trillion in annual cash flow over 10 years, he said.
On Wednesday, speaking ahead of Nvidia results, Amundi, Europe’s largest asset manager, said it was underweight megacap stocks.
While he did not sell stocks in most of the portfolio, he is hedging with derivatives that give him the option to sell them instead, said Amundi’s CIO, Vincent Mortier.
Principal Global’s Shah said it is looking at Europe.
“Tech exposure in Europe is low so it’s a great way to diversify against the risk of concentration,” she said.
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