As the calendar flipped to 2023, financial experts had forewarned of a looming U.S. recession and a possible market downturn. However, contrary to these predictions, the market took an unexpected turn and didn’t experience the anticipated decline. The tale of 2023’s market intricacies requires us to journey into the realms of video games, artificial intelligence (AI), and a group of influential entities known as the Magnificent Seven.
The Power of Video Games and AI:
If you’ve dabbled in video games over the past quarter-century, the name NVIDIA would likely ring a bell. This tech titan has been at the forefront of designing graphics processing units (GPUs) that underpin the gaming industry. NVIDIA’s GPUs have significantly elevated the visual quality and immersive experience of video games, revolutionizing graphics.
However, NVIDIA’s story in 2023 is more than just about gaming. The same GPUs that brought life to virtual worlds are integral in training large language models (LLMs), a driving force behind AI. These AI models, which master human-like text generation through extensive data, garnered considerable attention with the launch of ChatGPT 3.5 in the previous year. Its real-world applications spanned coding, marketing, and content creation.
NVIDIA’s stock value soared as it stood as a key GPU supplier for LLM training. The company’s market capitalization surged from $400 billion to a staggering $1 trillion, placing it among the top U.S. companies.
The Magnificent Seven and Their Impact:
This surge in NVIDIA’s success reverberated across the entire market, notably evident in the S&P 500 index. The index delivered remarkable returns in 2023, boasting a year-to-date gain of 16.89% by June’s end. The spotlight, however, falls on the Magnificent Seven companies: Apple, Microsoft, NVIDIA, Amazon, Meta (formerly Facebook), Tesla, and Alphabet (Google).
This group is believed to be the primary beneficiaries of the ongoing AI revolution, collectively contributing to over 70% of the S&P 500’s gains until mid-year. In contrast, the rest of the stocks within the index yielded an average return of approximately 7.5%, with nearly 40% of companies encountering negative returns.
A Timeless Lesson and the Path Ahead:
The lessons gleaned from the market’s journey in 2023 offer valuable insights for investors. Firstly, despite the concentration of returns within a select group, it’s essential to acknowledge the potential for wider market disparities. Secondly, technological advancements, particularly in gaming and AI, can have substantial impacts beyond their respective industries. Lastly, the ongoing AI revolution presents lucrative opportunities for both established companies and emerging players in the market.
As we reflect on the market story of 2023, it’s clear that gaming, AI, and the Magnificent Seven have shaped a narrative filled with unexpected twists and turns. Understanding these dynamics allows us to navigate the future with greater insight and adaptability.