S&P 500 hits record-high, Nvidia soars 5% after US Fed rate cut triggers rally in semiconductor stocks

After the US Federal Reserve kicked off its easing cycle delivering a super sized rate cut, US semiconductor stocks such as Nvidia rose nearly five per cent, while Advanced Micro Devices gained 3.5 per cent and Broadcom added 3.8 per cent, sending the Philadelphia SE Semiconductor Index up 3.6 per cent on Thursday, September 19.

Wall Street rallied on Thursday with the S&P 500 hitting another intraday record high after the Federal Open Market Committee (FOMC) delivered a half-a-percentage point reduction and estimated more cuts ahead. Rate-sensitive growth stocks that have led much of this year's rally rose. Microsoft added two per cent, Tesla gained 4.2 per cent and Apple advanced 2.6 per cent.

Also Read: US Fed lowers policy rate by 50 bps from 23-year high, signals additional 50 bps cuts; 5 key takeaways

Wall Street today: Chip stocks rally after Fed's 50 bps rate cut

As of 10 a.m. Eastern time, the Dow Jones Industrial Average was up 1.2 per cent, the Nasdaq Composite was 2.2 per cent higher, and the S&P 500 was 1.5 per cent higher. At the opening bell, the Dow Jones Industrial Average rose 469.5 points, or 1.13 per cent, to 41972.56. 

The S&P 500 rose 84.4 points, or 1.50 per cent, to 5702.63, while the Nasdaq Composite rose 407.6 points, or 2.32 per cent, to 17980.891. In the bond market, the yield on the 10-year Treasury rose to 3.73 per cent from 3.71 per cent late on Wednesday. The 2-year Treasury yield slipped to 3.60 per cent from 3.63 per cent.

Experts predict AI chipmaking stocks to benefit from rate cut

Nigel Green, CEO of deVere Group said, “The artificial intelligence (AI) sector is expected to benefit from the Fed’s shift to monetary easing, opening the door to renewed growth, increased investment, and a surge in innovation."

“Firms developing AI technologies, from machine learning to robotics, rely heavily on capital-intensive research and development (R&D) efforts. Lower rates will reduce financial constraints on companies focused on AI, enabling them to double down on innovation and scale up their operations.," he added

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This could drive the next wave of breakthroughs in artificial intelligence, positioning the sector for sustainable long-term growth. Nvidia, a prominent player in the AI sector, serves as a bellwether for the industry’s potential resurgence.

Although the company’s stock has dipped in recent months amid macroeconomic uncertainty, its fundamentals remain solid. Nvidia’s Q2 2024 earnings reflected strong demand for AI-related products, with revenue soaring 88 per cent year-over-year to $13.51 billion. These results highlight the ongoing global appetite for AI technologies, especially those focused on high-performance computing and machine learning.

Nvidia’s recent performance offers a glimpse into the wider AI sector’s strength. AI’s rapid adoption across industries—from autonomous vehicles to financial services—has created immense demand for the hardware, software, and services that support these technologies.

While Nvidia’s trajectory showcases the upside potential, the entire AI ecosystem stands to benefit from the Fed’s policy shift, including startups, cloud service providers, and enterprises integrating AI solutions.

Also Read: US inflation hits 43-month low at 2.5% YoY in August: Wall Street lifts 25 bps Fed rate cut bets; Here’s why

"Historically, growth sectors like AI outperform in low-rate environments as companies gain easier access to capital and investors seek high-growth opportunities. With the Fed signalling a new monetary direction, investor sentiment towards AI companies is likely to improve," said Nigel Green.
 

US Fed rate cut verdict

For the first time in four years, US Fed chair Jerome Powell-led rate-setting panel slashed its benchmark interest rate by (50 bps) half a percentage point to 4.75 per cent—5 per cent. The US central bank maintained the key borrowing rate elevated at the 23-year high for 14 consecutive months since July 2023 to combat the worst inflation outbreak in almost 40 years. 

In its policy statement, the Fed policymakers said FOMC gained greater confidence that inflation is moving sustainably toward the two per cent target level. It added that “risks to achieving its employment and inflation goals are roughly balanced.”

"It is time to recalibrate our policy to something more appropriate, given the progress on inflation and employment moving to a more sustainable level," Fed Chair Jerome Powell told reporters in a post-policy press conference after unveiling the rate cut verdict. "This is the beginning of that process," he added.