Did the Fed’s rate cut just open the door for Nvidia stock to go on another huge rally?
Nvidia (NVDA 4.13%) stock is jumping Thursday following the Federal Reserve’s recent interest rate cut. The company’s share price was up 4.9% as of 3 p.m. ET.
The Fed announced yesterday that it would be cutting interest rates by 50 basis points — coming in higher than the 25-basis-point cut that many investors and analysts had anticipated. While the initial reaction to the rate cut didn’t spur gains for the broader market, investors quickly became more bullish after weighing the move from the central banking authority.
Investors have been eagerly awaiting a pivot to rate cuts as a potential bullish catalyst for the stock market and growth stocks in particular. After getting the chance to soak up some additional commentary on the economic outlook, investors are seeming more confident that inflation is under control and that the economy will avoid a recession in the near term.
Is Nvidia stock a buy after the Fed’s rate cut?
If the economy stays relatively healthy and avoids contraction, the Fed’s shift to rate cutting could help pave the way for a new bull rally that spurs big gains for Nvidia stock. Of course, there’s still significant uncertainty on that front, and additional risk factors including geopolitical tensions could inject new bearish sentiment despite the rate cut.
But while investors shouldn’t take the rate policy pivot as a clear indicator that Nvidia will continue to surge, the business is firing on all cylinders and continues to look like a worthwhile artificial intelligence (AI) stock for long-term investors. In addition to strong demand from hyperscale cloud companies and other large enterprises, Nvidia will likely see rising demand from government customers. The company has highlighted the importance of having “sovereign AI” as a key national priority for governments around the world, and spending from public sector customers is likely still in early stages of ramping up.
Nvidia also has major new product releases set to hit in the fourth quarter. The first of the company’s Blackwell processors are expected provide major performance and power-consumption advantages compared to the company’s current top-of-the line H200 processors.
With the release, customers will likely be able to get a dramatic improvement in the amount of processing power they’re getting per dollar. But Nvidia will also be able to command a pretty penny with its next-gen processors thanks to the performance leaps that are expected to be delivered.
The Blackwell processors could help boost margins once released — or the company could price the new hardware aggressively to stamp out opportunities for competitors. So while there’s uncertainty about what moves the broader market will make in the near term, Nvidia’s competitive positioning in AI continues to look very strong and opens the door for strong returns.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.