Lower oil prices ease inflation concerns, lifting Dow Jones futures

Inflation releases and AI company earnings are in focus this week, with US index futures showing a mixed performance.
A board investigation into a reported affair targeting CEO Jensen Huang for espionage puts Nvidia under pressure.
Possible Democratic moves to tighten AI regulation and limit data centre expansion are being assessed by markets.

0.65% is the gain in Dow Jones futures on Monday. The contract trades near 51,720 during European hours. S&P 500 futures are up 0.30% at around 7,420, while Nasdaq 100 futures are down 0.12% at approximately 27,050.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Lower energy prices and inflation concerns form the backdrop to a mixed session for US equity futures. Oil retreated following comments from US President Donald Trump that additional military action against Iran is "highly unlikely," provided progress continues on Iran's nuclear programme and the Strait of Hormuz stays open. Trump also recognised that the unpopular Middle East conflict had earlier pushed up energy costs and contributed to recent Republican losses in the midterm elections.

This week’s key inflation releases and results from major AI-linked technology companies have investors on alert, alongside renewed corporate uncertainty at Nvidia. An independent investigation launched by its board is likely to keep the company in sharp focus. The inquiry follows allegations that CEO Jensen Huang was targeted in a Chinese honey trap operation.

Results due across the week from CoreWeave, Cisco and Applied Materials should provide more detail on AI demand and the sector’s growth prospects. For clues to the Federal Reserve’s next interest rate decisions, investors are also closely watching the US Consumer Price Index (CPI) release on Tuesday and the Producer Price Index (PPI) report on Friday.

A 0.93% decline in the Dow Jones Industrial Average accompanied broader losses on Wall Street last week. The S&P 500 shed 2.68%, while the technology-heavy Nasdaq Composite fell 3.37%. Mounting concern that Democrats might seek tighter AI regulation and potentially curb data centre expansion was the main driver of the widespread selling.

25 basis point Fed hike expectations hold despite recent data

Further tightening this year is already firmly reflected in the Fed’s own projections, according to analysts at Commerzbank Research. As they point out, “of the 18 Fed officials who submitted projections for the appropriate path of interest rates in September, 16 anticipated at least one more rate hike this year,” while their assessment is that “the data released since then are unlikely to have changed that assessment materially.” Strong October payrolls, coupled with inflation that remains elevated, strengthen the argument for an additional 25 basis point rise at the December FOMC meeting, in their view. That would be consistent with the Fed’s previous guidance.

AI stocks: key questions answered

How is artificial intelligence defined?

At its core, artificial intelligence is an academic field focused on reproducing human cognitive abilities in machines, including logical understanding, perception and pattern recognition. Commonly shortened to AI, it encompasses artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The field’s ultimate objective is artificial general intelligence, or AGI: a machine capable of solving arbitrary problems without having been trained specifically to address them.

Where is AI used?

Applications of artificial intelligence span a wide range of activities. Among the most familiar are generative AI platforms such as ChatGPT and Google’s Bard, which respond to text queries using training on large language models (LLMs). User-written text also serves as the input for Midjourney, a programme that creates original images. Probabilistic methods underpin other AI applications that assess an entity’s characteristics or how it is perceived. For example, Upstart’s lending platform assesses applicants’ creditworthiness through an AI-enhanced credit rating system that searches the internet for information on their careers, wealth profiles and relationships. In pharmaceutical research, other AI systems draw on extensive databases of scientific studies to propose potential new medicines for laboratory testing. Content aggregators including YouTube, Spotify and Facebook collect and organise information about users’ viewing habits, then use AI applications to recommend personalised content.

Which stocks offer exposure to AI?

Among semiconductor companies, Nvidia (NVDA) produces AI-oriented computer chips as well as some of the platforms engineers use to develop AI applications. Because it supplies tools for further AI development, many supporters regard Nvidia as a picks-and-shovels investment in the AI revolution. Another name is Palantir Technologies (PLTR), a “big data” analytics business with sizeable US intelligence community contracts. Its Gotham platform helps that community analyse data, identify intelligence leads and support pattern recognition. Large corporations use Palantir’s Foundry product to monitor employee and customer data for predictive analytics and anomaly detection. Microsoft (MSFT), meanwhile, owns a substantial stake in OpenAI, the privately held creator of ChatGPT. OpenAI’s technology has been incorporated into Microsoft’s Bing search engine.

200%-plus Nvidia rally: is AI creating another stock bubble?

Well over 200% was Nvidia’s gain in the six months after ChatGPT’s public launch in late 2022, as many AI-linked shares rallied. Wall Street commentators quickly questioned whether another technology bubble was taking hold. Stanley Druckenmiller, the prominent investor who has held substantial positions in both Palantir and Nvidia, argued that bubbles never endure for just six months. If enthusiasm for AI did develop into a bubble, he said, extreme valuations would persist for at least two and a half years or longer, as in the DotCom bubble of the late 1990s. By mid-2023, the best assessment was that the market had not entered a bubble, at least for the time being. Nvidia’s valuation then stood at 27 times forward sales, but analysts expected exceptionally strong revenue growth over the coming years. For comparison, the NASDAQ 100 reached 60 times earnings at the DotCom peak, versus 25 times earnings in mid-2023.