Shares of Nvidia (NVDA +1.80%) were recouping losses from yesterday's rout today as investors enjoyed a "risk-on" movement after several volatile sessions in Nvidia and the broad market.
Today's jump was sparked by an employment report that showed a decline in initial unemployment claims, cooling off fears that the economy was possibly headed toward a recession after the July unemployment rate jumped from 4.1% to 4.3%.
As a result, Nvidia stock was trading up 6.3% as of 2:17 p.m. ET, while the Nasdaq had jumped 3% at the same time.
Image source: Nvidia.
Nvidia is at the mercy of the market
Chip stocks, including Nvidia, rallied broadly today after initial unemployment claims fell to 233,000 last week from 250,000 the week before.
Ordinarily, that kind of data point wouldn't move markets, but investors are closely watching employment data for signs that the economy could be weakening faster than expected.
Last week, A spike in initial unemployment claims to the highest level in nearly a year and the disappointing July employment numbers helped trigger a sell-off that sent the Nasdaq down 8% over a three-day span. Nvidia was hit even harder, falling 14% during the collapse.
NASDAQ: NVDA
Key Data Points
Why Nvidia stock is so volatile right now
Nvidia and its semiconductor peers operate in a highly cyclical sector. In the best of times, like the last year-and-a-half, demand and prices soar, leading to billions in profit. In tougher times, the industry is plagued by inventory gluts, falling prices, and sometimes massive losses.
The chip sector seems to be at a tipping point right now. Investors would like some convincing that the AI boom can continue and that the U.S. economy is strong enough to support it. Big tech stocks like Microsoft and Alphabet, who are some of the biggest customers for chipmakers like Nvidia, sold off following their recent earnings reports in part due to doubts that the billions that they were spending on AI infrastructure would pay off.
In order for the AI boom to continue, the economy will need to avoid a recession, so it's understandable why a seemingly minor economic data point would send Nvidia and its peers soaring. Investors want reassurance on the macro environment and they just got some.
Over the longer term, Nvidia will need strong demand for its AI components to continue, which could rely on the development of a "killer AI app" or more convincing that generative AI is truly transformative.
For now, the next big event for investors to watch is the company's second-quarter earnings results, due out on Aug. 28. The stock will almost certainly swing big on the update, and the recent sell-off in the stock could help fuel a recovery.
Until then, keep your eye out for more economic data, and expect more outsize reactions from the AI chip superstar.
