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Nvidia ( NVDA ) earnings bring short-term relief

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Investors wary of tech concentration, seek diversification

By Dhara Ranasinghe

LONDON, Nov 20 (Reuters) - Markets may have weathered a

key Nvidia ( NVDA ) earnings test but the ability of big tech to move

sentiment across markets on a dime will continue to preoccupy

investors as lofty valuations persist.

AI darling Nvidia ( NVDA ) on Wednesday surprised Wall

Street with accelerating growth after several quarters of

slowing sales and a fourth-quarter forecast that exceeded

expectations.

While the relief across world stocks was evident on

Thursday, even Nvidia's ( NVDA ) upbeat results were unlikely to dispel

concern around a fall back to earth for highly-valued tech

stocks, amid lingering concerns about whether AI spending will

pay off.

Global stocks have dropped almost 3% this month, set for

their biggest monthly fall since March, in part driven by

concerns that a rally in tech shares has gone too far, too fast.

"The concerns around tech will persist and each quarter we

are likely to come across the same concerns as markets question

the concentration," said Seema Shah, chief global strategist at

Principal Global Investors in London.

"That story won't go away."

Shah said that while she was overweight U.S. stocks, she was

also wary of concentration risks and this was one reason why she

was looking at European shares.

AI COMPANY RESULTS AS IMPORTANT AS DATA PRINTS

Investors and analysts say as AI emerges as a so-called

mega-trend, earnings results such as those from Nvidia ( NVDA ) have

become as key to shaping views on the economic outlook as

monthly economic releases. Next big dates in the calendar range

from upcoming tech earnings to signs of how widely AI is being

adopted, justifying the spending.

Investors need to brace for a bumpy ride.

"Investors do need to worry about bubble risks," Mark

Haefele, chief investment officer at UBS Global Wealth

Management, told reporters on a call about the 2026 outlook on

Thursday.

The so-called "Magnificent Seven" - including Nvidia ( NVDA ) and

Meta - have seen their share prices soar, fuelling

fears about the scale of market exposure to just a few names.

Technology firms are among the stock market's big fallers in

recent days, although they are still well up on the year.

The S&P 500 tech sector's forward price/earnings ratio - a

measure of how much a company is worth compared to future

earnings - is about 30 times, well above its 10-year average of

22.2.

The AI stocks frenzy has drawn comparisons with the 1990s

dotcom boom and bust, while concerns were rising about debt

taken on by tech firms.

Nvidia ( NVDA ) produced $60 billion in free cash flow over the past

12 months, David Trainer, CEO of investment research firm New

Constructs, said in a note. To justify its current stock price,

it would need to produce $2.1 trillion in annual cash flows

within 10 years, he said.

On Wednesday, speaking before the Nvidia ( NVDA ) results, Amundi,

Europe's biggest asset manager, said it was underweight megacap

stocks.

While it had not sold down the stocks in most portfolios, it

has been hedging with derivatives that give it the option to

sell them instead, Amundi's CIO, Vincent Mortier, said.

Principal Global's Shah said she was looking towards Europe.

"Europe has a lower exposure to tech so it is a nice way to

diversify against concentration risk," she said.