Infosys agrees to partnership on generative AI

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• Nvidia is trading lower at the start of Wednesday’s session.
• NVDA is more than 13% off its August 24 all-time high.
• The Federal Reserve will make its interest rate decision at 14:00 EST.
• Taiwan Semiconductor announcement still weighing on sector.

Nvidia (NVDA) stock is making slight gains on Wednesday alongside broad market optimism for the Federal Reserve’s interest rate decision that takes place at 14:00 EST / 18:00 GMT. NVDA stock is trading 0.3% higher a half hour into Wednesday’s session at  $436.50.

The NASDAQ Composite, S&P 500 and Dow Jones have all advanced – value stocks are winning thus far with the Dow in the lead and the NASDAQ bringing up the rear.

Nvidia stock news: Interest rate pause should aid equity market

The CME Group’s FedWatch Tool gives the Fed a 99% chance of pausing rates at the 5.25% to 5.5% range. That would alleviate the market’s fears as higher interest rates boost Treasuries and reduce the relative value of equities. Nvidia stock should benefit if rates remain unchanged. In the event of an interest rate hike, however, expect the entire market to sell off in short order.

Before the market opened, Nvidia announced a new partnership with India’s Infosys (INFY). The latter will utilize Nvidia’s AI tools and platforms to offer its customers access to various generative AI solutions and integrations.

In other news, on Tuesday UBS released a report on the secondary GPU market. They found that volumes have dropped precipitously, but this appears to be due to a lack of supply. Prices on average ticked up 3% from July. 

Nvidia shareholders face possible demand shortfall

As the leading stock in the artificial intelligence (AI) industry based on the supply of its advanced GPUs, Nvidia has garnered an industry-leading valuation. The stock is valued at 45 times forward GAAP earnings. If those profits fail to materialize, then shareholders are always at risk of a profound sell-off. 

Consensus earnings are expected to rise 224% this fiscal year, 48% the following year and 25% the year after that. Likewise, revenue is expected to spike 101% this fiscal year, 43% the following year, and 23% the year after that. A lot is then riding on Nvidia’s commercial performance to make this high valuation sensible.

It didn’t help things then that Nvidia’s primary foundry partner, Taiwan Semiconductor (TSM), announced last Friday that it was delaying the delivery of equipment it had previously ordered from suppliers like ASML Holdings (ASML). Management blamed the delay on worries over demand from its customers, which was quite surprising.

Ever since OpenAI released ChatGPT in late 2022, most semiconductor headlines have mostly concerned themselves with lack of supply. Demand was reported to be unquenchable, and rumors abounded of various companies and nations stockpiling Nvidia’s H100 GPUs. 

It is possible demand is only receding for Taiwan Semi’s other customers – such as Apple (AAPL) or Advanced Micro Devices – but Nvidia is certainly the foundry’s most famous client. Placing the blame on demand might also be a bait-and-switch tactic, since Taiwan Semiconductor recently shifted its start date for production at its new Arizona foundries by one year to 2025, blaming that delay on lack of manpower.

In other news, the UK’s Competition & Markets Authority released seven principles for regulating artificial intelligence on Monday. The regulatory authority named Nvidia by name as one of the corporations it would be holding discussions with on the matter.