The German DAX index experienced a significant gain on Thursday, closing at 23,279 points, a 0.5% increase compared to the previous day’s close. While initially buoyed by positive sentiment, the index fluctuated throughout the session, ultimately demonstrating the ongoing fragility of investor confidence despite the bullish data. The day’s trading was dominated by renewed debate surrounding the impact of artificial intelligence (AI), specifically concerning the valuations of companies heavily invested in its infrastructure.
The unusual pivot point for this debate proved to be Nvidia, the dominant chip manufacturer essential for AI development. Christine Romar, Head of Europe at CMC Markets, noted the surprise reaction to remarks made by Nvidia CEO Jensen Huang during the release of the company’s earnings report. Huang essentially dismissed concerns about an AI-driven market bubble, characterizing anxieties about overvaluation as “talk” and highlighting “incredibly high demand” for their sold-out chips and an “exponentially increasing need” for computing power.
While Romar acknowledged that Nvidia’s accelerated revenue and profit growth could lend some justification to current high valuations, the market’s reaction was telling. The bullish Nvidia data effectively overshadowed a stronger-than-anticipated US jobs report, a development that would typically trigger caution. “As if nothing happened, the fear of a bubble bursting has been priced out of the market” Romar observed.
The DAX, influenced by the broader positive sentiment, now faces a critical juncture. The index is poised to test its 200-day moving average. Whether it can convincingly surpass this level, effectively retracting a previously issued sell signal, remains to be seen. Failure to do so could see the recent rally swiftly reversed.
Within the DAX, Rheinmetall, Qiagen, Siemens Energy and RWE led the gains, while Henkel, Symrise and Beiersdorf underperformed.
Beyond equities, rising energy prices added another layer of complexity to the economic landscape. Natural gas futures for December delivery rose to €31 per megawatt-hour, marking a 1% increase from the previous day and suggesting consumer electricity prices could remain elevated. Brent crude oil also saw an uptick, reaching $63.88 per barrel, a 0.6% increase. The euro weakened slightly against the US dollar, trading at $1.1538.
The unanticipated confidence stemming from Nvidia’s pronouncements raises concerns about the potential for irrational exuberance and a disconnect between market performance and underlying economic realities. Scrutiny will now focus on whether this newfound optimism is sustainable or merely a temporary reprieve from the anxieties surrounding a potential AI market correction.