Nvidia and Salesforce leave bulls wanting as AI trade stalls

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Investors hoping that Nvidia Corp.’s earnings would rejuvenate the artificial intelligence trade didn’t exactly get the report they wanted.

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The chipmaker failed to generate much excitement, with a beat that fell short of the company’s typical blowout numbers and a mixed outlook for next quarter. While Nvidia allayed some of the fears that have weighed on the stock since the emergence of AI startup DeepSeek earlier this year, big questions about the longevity of spending on AI remain.

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“A couple of months ago we were very certain of the growth component of AI,” said Brian Mulberry, client portfolio manager at Zacks Investment Management Inc. “Where we are today, that seems to be a much wider range of outcomes than what it was before. And the volatility in these AI-related names are starting to reflect that.”

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Things are even murkier on the AI services side. Salesforce Inc., which began rolling out so-called AI agents last year, dropped more than three per cent in premarket trading after giving a disappointing forecast. “Agentforce,” which is meant to complete tasks such as customer service without needing direction from a person, is only expected to make a modest contribution to revenue this year, the company said.

“Salesforce seems to be struggling a bit,” said Chris Brigati, chief investment officer at SWBC Investment Services. The reports from Nvidia and Salesforce “suggest the AI trade won’t be anywhere near as robust as it was in 2023 or 2024, though it remains positive, with some room to grow. It’s like we’re dropping from fifth gear to fourth.”

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Brigati is still bullish on Nvidia as the market leader in AI, and said any pullback in the shares could be a good buying opportunity.

The earnings reports came at a delicate time for the AI trade. China-based DeepSeek, a lower-cost AI model, raised questions about American dominance of the burgeoning field, as well as about the huge amounts that companies are spending on the technology. At the same time, the technology sector has been hit by uncertainty about the impact that President Donald Trump’s tariffs will have on the U.S. economy and inflation.

A Bloomberg index that tracks the Magnificent Seven — which includes Nvidia — has fallen 11 per cent from a December peak. The tech-heavy Nasdaq 100 Stock Index is down nearly five per cent from a record close last week.

And despite reassurances from tech giants like Meta Platforms Inc. and Amazon.com Inc. that they remain committed to plans to spend even more on capital expenditures this year, a cloud has lingered over shares of Nvidia and other hardware makers.

Krishna Chintalapalli, portfolio manager at Parnassus Investments, said Nvidia’s results were solid and will kick the can down the road for another three-to-six months on some of the bigger questions around the AI trade.

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“The long-term debates haven’t been resolved,” he said. “There are questions on the sustainability of spending, LLM (large language model) monetization, enterprise adoption. All those are happening, but we’re still in the early stages.”

Now that early gains from the AI trade have been made, “we’re looking for long-term conviction,” he said. “That won’t necessarily come from Nvidia. It will come from software companies, enterprise IT departments; once they start seeing real returns from AI, that will probably start the next leg of the cycle,” he noted.

“The real concern is what things could look like 3-5 years from now.”

—With assistance from Subrat Patnaik.

Bloomberg.com

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