CICC's US equity strategy: "AI trading" fever

Guotai Junan released a research report saying that the future of the AI industry is not only the core pricing logic of leading US companies, but also a key indicator of US economic development and the overall earnings of the US stock market. Although the US stock market is highly valued, the rapid development of the AI industry and the realization of profits can continue to digest the optimistic expectations of high valuation. Looking ahead, the "soft landing" of the US economy is the baseline scenario, and the risk preference still has an upward trend, which means that investors' risk tolerance is strengthened, and technology, as the core driving force of the US economy, is expected to continue to attract capital inflows.

Nvidia's (NVDA.US) earnings announcement became a major event that attracted market attention after the election and the Fed's rate cut. The market's enthusiasm for the "Trump trade" and the "Fed rate cut trade" seems to have cooled a bit, and the rise of the S&P 500 index showed signs of fatigue. The market shifted its attention and enthusiasm to another major event - Nvidia's third-quarter earnings report.

Investors hope to find clues about the future trend of the S&P 500 index from Nvidia's earnings report. Since the beginning of the year, the S&P 500 index has risen 24.7%, with a valuation level of 26.6 times, reaching 91% of its historical percentile. The high valuation of the US stock market is mainly driven by the rapid development of the AI industry, which has boosted the high profit growth and optimistic expectations of the US stock market. Nvidia's performance can reflect the development process of the AI industry to a certain extent.

At a deeper level, Nvidia's stock price performance reflects the prospects of the US economy. On the surface, Nvidia is the largest weight in the US stock market, leading the S&P 500 index. The seven leading technology companies, including Nvidia, have driven the market up by 24% this year. At a deeper level, AI technology is widely applied in production, services, autonomous driving, healthcare, education, and enterprise operations, improving the production efficiency of each sector in the economy and promoting economic growth. In the field of AI chips, Nvidia's chips occupy most of the market, and the chips it produces have even become the "hard currency" of technological development. In a certain sense, investing in Nvidia is to invest in the prospects of the US economy and the entire US stock market's profit expectations.

Nvidia's performance after the earnings report initially weighed on its stock price, with market expectations being revised. Nvidia announced its 3Q earnings after the US market closed, exceeding market expectations, but its stock price fell more than 5% after hours, mainly because AI investors are the most bullish investors in the market, and the earnings report falling short of the most optimistic expectations will trigger a correction in the stock price. As the US economy shows resilience, the prospects of the AI industry continue to raise investor expectations, and the US stock market continues to rise.

Risk factors: the US economy is weaker than expected; international geopolitical events heat up.