Why S&P 500’s Peak is Likely 5,600

After closing at 5,567.19, the S&P 500 (SPY) has a high chance of crossing 5,600 next. The widely followed index owes much of its historic, record-breaking high to the hype in artificial intelligence (‘AI’). Meta Platforms (META) pivoted to Llama, Google (GOOG) has Gemini, Microsoft (MSFT) invested in ChatGPT, and Tesla (TSLA)’s CEO Elon Musk built xAi.

The AI arms race caused a surge in demand for Nvidia’s best GPU server chips. Amid the purchases, none of the firms may justify the expenses compared to the subscription revenue it brings. Amazon (AMZN) will refresh its Alexa service with an AI overhaul. In China, technology firms are vying for the market. Baidu (BIDU), Alibaba (BABA), and JD.com (JD) face price erosion for their cloud subscription services.

The SPY’s uptrend could stall if panic selling starts. Although Nvidia’s CUDA architecture is a moat, its stock trades at a forward P/E of 46.4 times. Its non-GAAP P/E of 69.9 times risks decompressing if revenue stalls within the next four quarters.

No Panic

Bond yields fell sharply after the BLS posted less robust job growth. This should enable the S&P 500 to continue its rise beyond 5,600. However, for several weeks, oil prices increased. High energy prices add to inflation, delaying interest rate cuts and pressuring stock valuations.

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