Nikkei record offers a cautionary tale; Nvidia’s party to end?

Nikos Tzabouras, Senior Financial Editorial Writer at multi-asset trading platform, Tradu, comments on the surge of Japan’s Nikkei index and his expectations following Nvidia’s recent earnings report.
 

On the Nikkei’s record high, Nikos said: “Nikkei 225 surpassed its 1989 record high, creating exuberance but comparisons with that period offer a cautionary tale. The surge is partly due to the weak yen, as a result of the Bank of Japan’s ultra-loose policy setting, which makes Japanese stocks more attractive to foreign investors.

“Back in 1989-1990, the central bank raised rates by 350 basis points, contributing to the Nikkei’s post-peak slump and Japan’s “Lost Decades”. On a similar note, the BoJ is now looking to normalise its accommodative stance and increase rates, in a move that could rattle equities.

“If history is any guide there are reasons for concern, but such comparisons have limitations. The BoJ is unlikely to hike as aggressively as in 1989-1990 and the Nikkei’s rise is attributed partly to structural reforms that create optimism for a more sustainable strength.”

 
On Nvidia, Nikos commented: “Nvidia is the leader and enabler of the generative AI revolution, reaping the benefits of its unique position. The stock has already gained around 25% YTD after its latest blowout results. Revenue growth picked up steam and the firm expects further acceleration in the current quarter and sees “excellent” conditions for growth to 2025 and beyond. The AI boom is still in its infancy and Nvidia is best positioned to capitalise on further expansion, which can continue to drive its financials and stock price.

“It’s hard to gauge when the party will stop, but if revenue starts slowing down, investors could become wary of Nvidia’s sky-high valuation. So far, Nvidia has not given reason to think its meteoric rise is a bubble, but that may change at some point. There are pitfalls ahead since its AI dominance will not last forever, as AMD and others are making progress. Export restrictions to China and strained Sino-Western relations also create another source of headwinds.”