Markets this week continued to puzzle over whether Artificial Intelligence (AI) related stocks are overvalued and whether a correction is imminent. The release of Nvidia’s blowout third-quarter results, an important sentiment barometer for the sector, has not settled the debate.
Equities slumped last week as concerns about an AI bubble surfaced. Weakness carried through to the early part of this week, with investors waiting on tenterhooks for Nvidia to report. As the most valuable S&P 500 stock with a market cap of around $4.5 trillion and a bellwether for the tech sector, Nvidia has a vast influence on market movements.
Nvidia delivered what the market had hoped for, with third-quarter revenues of $57 billion comfortably beating analyst estimates of $54.9 billion. The company’s revenue was up 22% from its second quarter and 62% year over year. Furthermore, CEO Jensen Huang offered an upbeat outlook for the upcoming quarter.
The numbers broke equities’ losing streak, with tech shares soaring in aftermarket trade Wednesday and into early Thursday. The S&P 500 climbed around 2% before the optimism faded. By late in the US trading session, the major indices were washed in red again as the AI fears reemerged and traders digested new economic data. At the time of writing, the S&P 500 was down 2.9% for the week and 4.4% over the month.
The release of stronger-than-expected US labour data yesterday played a role in stalling the momentum. Some commentators believe that the resilient jobs market means it is less likely that the Fed will cut interest rates in December. If interest rates remain higher for longer, that will decrease appetite for high-growth equities.
But it is also apparent that Nvidia’s strong numbers were not enough to banish AI-related market jitters. Concerns linger about lofty valuations across the sector as traders and analysts evaluate whether outsized investments into data centres and other AI infrastructure will pay off in the longer term.
As we have mentioned in previous news flashes, we believe that AI has the potential to reshape productivity, business models, and economic activity across nearly every industry. However, we recognise that there may be times of volatility as earnings expectations grow more ambitious, competition intensifies, and winners and losers emerge.
The sheer scale of data-centre capital expenditure and the emergence of circular or vendor-financed transactions raise legitimate concerns about a correction if earnings growth slows down. AI-linked companies have so far consistently beaten expectations – but what happens if one of the large players has a disappointing quarter?
Our research suggests that, even if AI stocks merely meet one-year forward earnings expectations rather than exceed them, markets could experience a meaningful pullback. Our models show a potential 20% correction in tech names and an around 10% decline across the S&P 500 in that scenario.
What matters now is how consistently AI-powered companies translate massive capital outlays into sustainable earnings. Investors may need to brace for further swings as sentiment shifts between enthusiasm and caution as the market tries to accurately price the true value of AI.
“If investment outweighs the value added by AI, that’s when a bubble could form.”
– Stephen Yiu, chief investment officer of Blue Whale Growth Fund
“We can look back at the internet right now. There was clearly a lot of excess investment, but none of us would question whether the internet was profound. I expect AI to be the same. So, I think it’s both rational and there are elements of irrationality through a moment like this.”
– Sundar Pichai, CEO of Alphabet
Global News
- Nvidia eased tech-sector concerns about an AI bubble after delivering a stronger-than-expected outlook on Wednesday. It stated that a half-trillion-dollar surge in revenue in the coming quarters may exceed earlier expectations. Its outlook was driven by its conviction that demand for its AI accelerators remains robust despite recent doubts about sustainability. Shares initially rose about 5% in late trading, lifting related AI stocks, before turning south yesterday as Nvidia’s earnings report failed to allay investor worries about lofty valuations. The S&P 500 Index sank 1.6%, while the Nasdaq 100 Index closed 2.4% lower, its lowest point since September. Nvidia was the biggest drag on the index, sliding 3%. Nvidia had, up until Wednesday, gained 39% this year to a $4.5 trillion valuation.
- Peter Thiel’s hedge fund Thiel Macro sold its entire Nvidia stake in the third quarter, offloading shares that would have been worth about $100 million as of the end of September, a regulatory filing showed. The fund now mainly holds Apple, Microsoft, and a smaller Tesla position. Japan’s SoftBank also sold its Nvidia shares in October, with both firms exiting as Nvidia briefly surpassed a $5 trillion valuation. The sales came amid growing concerns over AI-driven valuations.
- The US Commerce Department said on Wednesday it has authorised the export of advanced AI chips – the equivalent of up to 35,000 Nvidia Blackwell units – to companies in the UAE and Saudi Arabia as they develop major data centre projects. The announcement coincided with Crown Prince Mohammed bin Salman’s first US visit since 2018. The department said the approvals come with strict security and reporting conditions.
- Alphabet shares surged nearly 6% to a record high on Monday after Berkshire Hathaway bought a $4.93 billion stake, signalling support for the company’s AI efforts. The purchase of 17.85 million shares marks one of Warren Buffett’s final significant investments and a rare tech bet for the traditionally tech-averse conglomerate. Alphabet has risen 14% in the December quarter, making it the best-performing member of the “Magnificent Seven” with a 46% gain this year.
- Morgan Stanley chief US equity strategist Michael Wilson is among the most bullish voices on Wall Street currently, projecting that the S&P 500 will rise by approximately 16% to about 7,800 points by end-2026. He bases his optimism on expectations of robust corporate earnings growth, increased efficiency driven by AI, more supportive fiscal and regulatory policies, and stable interest‐rate conditions. While his forecast is significantly more upbeat than many of his peers, he acknowledges the rally is still early and subject to risks, such as valuation pressures, macroeconomic headwinds, or policy missteps.
- The US added 119,000 jobs in September, more than double the 50,000 economists had expected, according to a Labour Department report that was seven weeks delayed by the federal shutdown. Revisions to the report released yesterday showed the economy lost 4,000 jobs in August rather than gaining 22,000. The economy also shed jobs in June, marking the first time since 2020 that monthly payrolls have turned negative twice in a year. Separate ADS research released on Tuesday indicated that US companies cut an average of 2,500 jobs per week in the four weeks leading up to November.
- Gold prices fell 0.6% yesterday as investors digested the September US jobs report, which showed stronger-than-expected employment figures and dampened prospects for a December rate cut. The US dollar firmed against most major currencies, making greenback-priced gold more expensive for overseas buyers.
- The UN Security Council on Monday approved US President Donald Trump’s Gaza peace plan, giving it a legally binding mandate after two years of conflict. The US resolution, containing Trump’s 20-point cease-fire plan, calls for an International Stabilization Force to demilitarise and govern Gaza and a “Board of Peace”. It passed 13–0, with Russia and China abstaining, and is a major diplomatic victory for the Trump administration.
- Trump’s approval rating fell to 38%, the lowest since his return to office, according to a Reuters/Ipsos poll released on Wednesday. Americans cited frustration with high living costs and his handling of the Epstein investigation. The four-day poll ended on Monday as his grip on the Republican Party showed signs of weakening. The online survey of 1,017 adults had a margin of error of about three points.
- At the Bloomberg Africa Business Summit on Tuesday, an Oppenheimer family heir described the UK economy as “uninvestable,” arguing that persistent policy failures and sluggish project execution have eroded its appeal to global investors. He cited the A66 upgrade, an 18-mile road project expected to take three decades despite a nine-month construction window, as emblematic of Britain’s broader dysfunction, adding that post-Brexit labour shortages and stagnant infrastructure are further undermining competitiveness.
- Japanese Prime Minister Sanae Takaichi faces her first major diplomatic test after angering China with comments suggesting a Taiwan Strait crisis could warrant the deployment of Japanese troops. China has responded with economic reprisals and demanded she retract her remarks. Takaichi has refused, setting up a tense standoff with Japan’s largest trading partner. The situation has raised concerns that Beijing could further escalate pressure, including through restrictions on rare-earth metals vital to Japan’s auto sector.
- Amazon raised $15 billion on Monday in its first US dollar bond sale in three years, joining a wave of tech companies issuing debt to fund AI infrastructure. The offering exceeded initial expectations by $3 billion and drew about $80 billion in peak demand before orders were trimmed. Proceeds will fund acquisitions, capital spending, and buybacks. Alphabet sold $25 billion earlier this month, Meta $30 billion last month, and Oracle $18 billion in September, pushing global issuance above $6 trillion this year.
- Microsoft and Nvidia will invest up to $15 billion in AI developer Anthropic, tying the company closer to two major backers of rival OpenAI. The investment will be part of Anthropic’s next funding round, according to sources. Anthropic will also buy $30 billion of computing capacity from Microsoft’s Azure cloud. The deal reflects a trend of circular AI investments, raising investor concerns about a potential bubble. Microsoft shares fell about 3% and Nvidia dropped 1% on Tuesday amid a broader market pullback.
- From Monday, Novo Nordisk cut US self-pay prices for its obesity drugs Wegovy and Ozempic, offering introductory doses at $199 a month and later pricing treatment at $349 via its NovoCare portal – about 30% below current levels. The move undercuts rival Eli Lilly’s Zepbound at low doses and aims to regain market share. The cuts also target cheaper copycats. Shares of Novo Nordisk rose less than 1% in Copenhagen, while Lilly’s shares were down less than 1% in New York.
- As at Thursday’s close the S&P 500 was 2.9% down for the week.
Local News
- The South African Reserve Bank on Thursday made its fourth rate cut of the year, lowering the repo rate by 25 basis points to 6.75%, signalling confidence in the country’s disinflation path and aligning monetary policy with the newly adopted 3% inflation target. The move comes amid a surprise easing in headline inflation to 3.6% in October and core inflation to 3.1%, enabling the bank to pivot toward a less restrictive stance while reiterating that the 3% target remains the focal point – not a tolerance range. The decision reflects deeper structural reform, with the Bank also adjusting growth and inflation outlooks downward and emphasising that it will act if inflation deviates from its new anchor.
- Top local bankers are expressing their strongest optimism in twenty years following Finance Minister Enoch Godongwana’s robust budget update, the new 3% inflation target, and S&P Global’s first credit upgrade for South Africa since 2005. With power and logistics stabilising and the country now removed from the FATF greylist, sentiment has shifted sharply. RMB CEO Emrie Brown on Tuesday described the moment as a “permanent inflection point,” reflected in the rand’s 10% gain against the dollar this year and the JSE’s 44% rise in dollar terms. Still, Moody’s struck a more cautious tone on Monday, saying the budget shows early fiscal improvement but persistent debt pressures. The deficit remained at 4.5% of GDP, with 80% of additional revenue already spent ahead of Moody’s next review on 5 December.
- Despite lower inflation targets and looming rate cuts, local businesses remain cautious, according to a South African Chamber of Commerce and Industry survey released on Tuesday. Nearly half of respondents in the October survey expect trade conditions to worsen over the next six months, with overall trade indices in negative territory. Headwinds include lower sales forecasts, fewer new orders, global trade tensions, rising municipal tariffs and electricity costs, and sluggish economic growth.
- Government is finalising a new economic diplomacy strategy to boost investment, expand regional value chains, and shield the domestic economy from geopolitical risks. Minister of International Relations Ronald Lamola said on Tuesday that the ministry will focus on attracting investment, growing key sectors such as critical minerals and manufacturing, and strengthening intra-African trade. This comes as the Department of Trade, Industry, and Competition seeks export-led growth, aligning with the African Continental Free Trade Area.
- ANC secretary-general Fikile Mbalula said on Tuesday that President Cyril Ramaphosa would have betrayed ANC members if he had resigned as party leader, because his election reflected the membership’s will rather than internal negativity or factionalism. Mbalula dismissed speculations that Ramaphosa might step aside soon, emphasising that such rumours stem from National Executive Committee members hoping to exploit the upcoming national general council for their own agenda.
- Agricultural exports rose 13% year-on-year to $4.7 billion in the third quarter, bringing cumulative exports for the first nine months to $11.7 billion, up 10% from 2024, Agbiz said on Monday. Higher volumes, favourable commodity prices, and improved port efficiency drove growth. Africa remained the largest market at 34%, followed by Asia and the Middle East at 25% and the EU at 23%. Exports to the US fell 11% after a second-quarter surge due to tariffs.
- Transnet said yesterday it had successfully raised R5 billion through its domestic medium-term note programme, with the issuance becoming nine times oversubscribed and drawing interest from over 40 global investors. The strong demand allowed Transnet to compress its funding curve by about 60 basis points, reflecting heightened investor confidence in its turnaround strategy and government backing, even after its credit assessment was downgraded by Moody’s three months ago.
- Naspers expects higher first-half earnings on stronger revenue and profitability from its consolidated e-commerce businesses and equity-accounted investments, especially Tencent. Core headline earnings per share (HEPS) for continuing operations, which strips out currency fluctuations, for the six months to September, should rise between 20.8% to 27.8%. Prosus, which largely determines Naspers’ results, expects its core HEPS to grow between 20.1% and 28.5%.
- Investec announced yesterday an ambitious push into the corporate mid-market segment, aiming to add 7,000 new clients by 2030 to complement its existing base of around 3,000. The strategy includes launching a dedicated mid-market division in South Africa serving businesses with turnovers between R30 million and R1.5 billion, while simultaneously scaling operations in the UK. The bank expects this initiative to become a major growth driver, significantly boosting revenue and improving return-on-equity by around 200 basis points by FY2030.
- Ninety One reported strong momentum on Tuesday, with assets under management rising 19% year-on-year to £152.1 billion (about R3.4 trillion) at the end of September, putting it on track to become the first South African asset manager to cross the R4 trillion mark. To sustain this growth, the firm is deepening its international push, expanding its investment capabilities in Saudi Arabia and entering a joint venture with a Singapore-based alternative investment firm to strengthen its presence in China, two regions it sees as central to its next phase of expansion.
- Coronation Fund Managers grew total assets under management 14% for the year to end-September, it said on Tuesday. Headline earnings per share fell 25% due to the one-off South African Reserve Bank reversal following the conclusion of a tax dispute last year. The firm cited long-term pressure on South African savings, rising unemployment, and the two-pot retirement system as ongoing challenges.
- Gold Fields expects about R343 billion in cash flow from operations over the next five years, supported by record gold prices, and says it has a clear pathway to producing 3 million ounces a year by 2030. The miner plans about R34.4 billion in discretionary investments and intends to return about R103 billion in base dividends plus R8 billion in special dividends or share buybacks to shareholders over the period.
- Walmart has launched a 60-minute delivery service that directly targets Checkers Sixty60. It also opened its first own-branded store on Wednesday ahead of Saturday’s public launch, signalling its intent to challenge the Shoprite Group in stores and in quick commerce. Walmart, owner of Massmart, is targeting the same convenience-focused, middle-to-higher-income shoppers driving Sixty60’s growth, intensifying competition with Checkers, Woolworths, Pick n Pay and Spar’s Gourmet format.
- WeBuyCars told Business Day on Monday that Chinese brands such as Haval, Chery, and GWM are strong performers, holding value and selling faster than many rivals. Competitively priced new Chinese cars with attractive finance deals are drawing buyers away from used vehicles, forcing WeBuyCars to lower what it pays for ageing premium models like BMW and Mercedes-Benz. The company, listed on the JSE last year, continued to gain market share and sold a record 16,294 units in November 2024.
- As at the time of writing, the rand was 1.7% weaker against the dollar, and the ALSI was 2.75% down for the week.
Sources: Dynasty, NYT, Reuters, Bloomberg, ITWeb, Business Day, M&G, ITWeb, CNN, etc.
