Oracle's upbeat outlook lights fire under AI-related stocks: Richard Hunter
Another feast for the bulls came in the form of a benign inflation reading and renewed AI clamour, sending the tech-focused S&P500 and Nasdaq to fresh record closing highs on Wednesday.
The latest Producer Price Index showed a 0.1 per cent decline in wholesale prices for August, as compared to expectations of a 0.3 per cent gain. The reading and estimate was the same at the core level, which omits more volatile food and energy prices, cementing hopes of an interest rate cut, with a weakening labour market adding fuel to the fire.
Within the numbers, there was also some relief that for the moment the impact of the global tariff measures which are driven by the US are not feeding through. This could suggest one of two things; either producers are simply absorbing these price increases, or the full effects of the tariffs are yet to feed through as inventories from before the tariffs implementation are being run down.
Elsewhere, Oracle lit a fire under the rekindled AI trade, despite marginally shy quarterly numbers.
The focus on the excitement was allied to the outlook, where Oracle revealed that it had signed four contracts which should result in a 77 per cent increase in cloud infrastructure revenue to $18 billion this year and to $144 billion in the next four years.
In the meantime, demand for AI servers from the likes of Amazon, Google and Microsoft bolstered revenues by more than 1,500 per cent in the quarter, which in turn sent its shares higher by 36 per cent, causing a ripple effect across the globe for AI-related stocks.
As a result, the S&P500 and Nasdaq set new record closing highs, taking their gains in the year to date to 11 per cent and 13.3 per cent respectively.
The Dow Jones was an outlier, drifting slightly after being impacted by a 3.3 per cent decline in the Apple share price, where the latest iPhone announcement failed to excite investors, although the index remains ahead by 6.9 per cent so far this year.
Driven rather less by the latest AI euphoria, the FTSE100 nonetheless opened higher on Thursday on the back of improved US economic sentiment.
The index constituents are estimated to derive more than 70 per cent of their earnings from overseas, and much of that from the US, such that a boosted economy will indirectly lift earnings.
A weaker US dollar resulting from a lower interest rate environment would therefore provide something of a headwind, but the increasing appeal of the UK’s premier index to global investors should be sufficient to offset such concerns.
At the open on Thursday, shares in M&G and Intertek drifted as both were marked ex-dividend, but elsewhere buyers sought a wide selection of stocks, such as BAE Systems where renewed momentum has resulted in a share price gain of over 60 per cent this year alone.
Despite some marginal weakness in the prices of oil and gold, the likes of BP and Fresnillo continued their ascent, with the latter now sitting on a remarkable 240 per cent gain this year. The brisk open leaves the FTSE100 ahead by 13.4 per cent in the year to date.
Richard Hunter is head of markets for interactive investor