Nvidia enjoys network effect while UK housebuilders dragged down by services inflation reading and negative comments from Berkeley

“Nvidia is enjoying a network effect – the more people talk about it, the more publicity it gets and the greater the demand for investors to own the shares,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“This creates a virtuous circle and has made the AI chip giant one of the hottest stocks to own in decades. Just as you think the hype is about to die down, along comes another wave to drive the shares even higher.

“Having yesterday surpassed Microsoft to become the world’s most valuable company, Nvidia’s shares kept on rising in after-hours trading. The US market is closed today for Juneteenth holiday, but investors will be hoping for the chip giant to make further gains on Thursday.

“AI remains a hot topic with countless industries looking to deploy the technology, but the more that Nvidia rallies, the greater the potential fall if it cannot meet lofty expectations.

“We’re already seeing cracks in the AI story with certain perceived winners experiencing a pullback in their share price including Adobe earlier this year and Salesforce more recently.

“It’s natural to see stocks move up and down during hype cycles so the big question is whether Nvidia is heading towards the ‘peak of inflated expectations’ phase or whether it can continue to pull a rabbit out of the hat with quarterly earnings beats to justify further share price gains.”

UK Housebuilders

“It was a bad day to be invested in UK housebuilders as a slump from Berkeley dragged down other shares in the sector.

“Services inflation coming in higher than expected has reduced the likelihood of near-term interest rate cuts and that means mortgage rates are unlikely to come down soon. A lot of people will have to wait a bit longer before they can afford to get on the housing ladder, which in turn dampens the prospects for housebuilders.

“Berkeley noted that the sales market remains subdued and its medium-term outlook is also patchy, saying profit won’t improve until planning and regulatory issues are resolved. Investors have taken the view that it is hard to get excited about the company’s prospects when there are such dark clouds.”

These articles are for information purposes only and are not a personal recommendation or advice.