AI-led rally on Wall Street loses steam, Nvidia pares gains

© Reuters. FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 9, 2024. REUTERS/Brendan McDermid//File Photo

By Amruta Khandekar and Bansari Mayur Kamdar

(Reuters) -Wall Street’s main indexes lost momentum on Friday following a dizzying rally fueled by euphoria around artificial intelligence that briefly vaulted Nvidia (NASDAQ:NVDA) to over $2 trillion in market valuation for the first time.

The S&P 500 and Dow Jones Industrial Average closed at record highs on Thursday after Nvidia’s blowout forecast that boosted investor confidence in the potential for AI.

The same day, the company added $277 billion in stock market value, Wall Street’s largest one-day gain in history as shares rallied.

After a sharp advance, shares of the chip designer shuttled between gains and losses after the first hour of trading on Friday, and were last up 1.2%.

Meanwhile, other Big Tech and growth stocks, which had been swept up in the previous session’s AI frenzy lost ground, with Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) falling between 0.4% and 1.4%.

Shares of Super Micro Computer (NASDAQ:SMCI), another beneficiary of the AI rally, dropped 13.5% after the server component maker priced its convertible notes.

The declines dragged the tech-heavy Nasdaq Composite down 0.19%, at 16,011.74 by 11:39 a.m. ET. The index was, however, close to its all-time high hit in November 2021.

“This is much more of puts and takes of what’s been a very solid week and folks thinking about how they want to be positioned going out over the weekend,” said Art Hogan, chief market strategist at B Riley Wealth.

That said, Hogan noted a bright outlook for Nvidia and AI-related stocks going ahead.

“We are certainly continuing to get new evidence that artificial intelligence is going to drive a lot of excitement in equity markets. Clearly they (Nvidia) have more runway in front of them.”

The Dow Jones Industrial Average was up 128.80 points, or 0.33%, at 39,197.91, the S&P 500 was up 5.44 points, or 0.11%, at 5,093.08.

All the three major indexes were set for weekly gains after turbulence in the prior week when hotter-than-expected inflation data dampened expectations of early interest rate cuts from the U.S. Federal Reserve.

Traders firmed up bets against any U.S. interest-rate cuts before June after Fed Governor Christopher Waller on Thursday said he was in “no rush” to lower rates.

Among other stocks, Carvana surged 31.4% on reporting its first-ever annual profit, helped by its pact with bondholders to cut its outstanding debt by $1 billion.

Warner Bros Discovery (NASDAQ:WBD) shed 11.3% on reporting a bigger-than-expected quarterly loss, as the media conglomerate battled the fallout of the twin Hollywood strikes on content generation.

Jack Dorsey-led Block jumped 17.0% after the payments firm forecast adjusted core earnings for the current quarter above Wall Street estimates, betting on consumer resilience.

Advancing issues outnumbered decliners by a 1.72-to-1 ratio on the NYSE and by a 1.09-to-1 ratio on the Nasdaq.

The S&P index recorded 89 new 52-week highs and two new lows, while the Nasdaq recorded 85 new highs and 109 new lows.