AI Rules Big Week for Tech Stocks

Edwin A. McKnight, LUTCF, ChFC®

May 29, 2024

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Increase Your Understanding

Last week's stock performance was mixed, following investors' reaction to the Fed's May meeting minutes, while a handful of mega-cap tech companies created a buzz with their news.

Market Splits

Stocks began trading in a narrow band last week. Still, mega-cap tech names rallied in anticipation of the Q1 corporate report from a key company that makes semiconductors for artificial intelligence (AI). The enthusiasm lifted the Nasdaq to fresh records.

Federal Reserve news mid-week unsettled investors, who reacted to Federal Open Market Committee meeting notes that stated some Fed officials worried over the lack of progress on inflation.¹

Technology was the sole winning group for the whole week, with all other Standard & Poor’s 500 industry sectors ending in the red.²

Sense And Sensitivity

A higher cost of capital may create challenges for firms that need to raise capital to continue operations. Against this backdrop, we find that unprofitable growth stocks are more sensitive to changes in interest rates rather than their profitable peers. We expect potential rate cuts in the second half of this year and into next year to provide some relief to unprofitable companies, though a higher terminal rate may keep investor scrutiny on company fundamentals elevated.

^{Article for GSAM.com : Sense and Sensitivity}

^{Source: YCharts.com, May 25, 2024. Weekly performance is measured from Monday, May 20, to Friday, May 24.}
^{TR = total return for the index, which includes any dividends as well as any other cash distributions during the period.}
^{Treasury note yield is expressed in basis points.}

Bucking The Trend?

One of the handful of companies bucking the trend last week was Nvidia.

The semiconductor maker – the fifth largest company in the S&P 500 by market capitalization, thanks to their prominent role in AI – reported that its Q1 sales tripled from a year ago. The company also announced a 10-to-1 stock split. The news pushed its market cap to over $2 trillion.³

The companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities.

To some on Wall Street, Nvidia is the bellwether for the AI industry. By one estimate, the entire AI market is nearly $300 billion for this year – more than 3X the market’s size of $95 billion just three years ago. By 2030, that estimate may reach $1.8 trillion.⁴

Remember that forecasts rely on assumptions and may undergo revisions over time. Financial, economic, political, and regulatory issues may cause the actual results to differ from the expectations expressed in the forecast.

"Appreciation is a wonderful thing. It makes what is excellent in others belong to us as well."

– Voltaire

Employee Vs Independent Contractor: Classifying Those Who Work For You Appropriately

Classifying workers as independent contractors or employees is essential for several tax reasons. The basis for this classification has two primary considerations: control and relationship.

Control refers to how much of the person’s work you control; this encompasses the completed work, its execution, and whether you control the financial aspects of the person's job. In this manner, "control" means both behavioral and financial control.

Another critical factor is the relationship between the employer and the worker. How both parties perceive this relationship can guide you in determining the worker’s status. Some factors that influence relationships include the following.

Written contracts that describe the relationship the parties intended to create.
Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation, or sick pay.
The permanency of the relationship.
The extent to which services performed by the worker are a pivotal aspect of the company's regular business.
The extent to which the worker has unreimbursed business expenses.

Classifying your workers is essential because independent contractors and employees face different tax needs and implications.

*This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁵

How To Take A Vacation Without Leaving Home

Vacations provide many benefits and are ideal for relaxing and taking a break from everyday stressors. But sometimes, you can't swing a whole vacation. The good news is that you can still enjoy a little getaway without leaving the comfort of your own home.

Here are some fun ways to "get away" without actually getting away:

Create a themed cocktail or drink based on the place you're dreaming of. Whip up a fancy French cocktail and pretend you're sitting on a terrace in Paris; order a local microbrew from a US destination you've always wanted to visit.
You can also host a themed dinner night and take a culinary adventure worldwide. Bonus points if you design an authentic menu.
Visit a museum (virtually). The Google Arts and Culture Project lets you visit the Tate, Reina Sofia, and Acropolis Museums from home.

Whether you want to visit a national park, learn a new language, or try a new recipe, there are countless methods to explore the world from your living room.

Tip adapted from Ideas.ted.com⁶