Why AI is more impactful on stocks than inflation data

Nvidia's upcoming fourth-quarter earnings report will be an 'important' test for the recent AI-driven market rally, cautioned Baird Managing Director and Market Strategist Michael Antonelli.

"There's a reason why the stock market is not really all that dominated by CPI, PPI, inflation prints.... It's because of AI," Antonelli told Yahoo Finance Live. "AI has essentially sucked all of the oxygen out of the room.. It's just absolutely on everybody's mind."

Nvidia's shares have surged more than 230% in the past year amid investor excitement surrounding the potential for artificial intelligence.

Antonelli added: "That's what markets do every now and then, they get obsessed over something. So, we're ignoring inflation just because of the AI thing."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

SEANA SMITH: Well, the major averages under pressure to start the week. You're looking at losses for the NASDAQ of about 1%. Now, this comes as investors digest earnings results from Walmart and Home Depot. And also look ahead to NVIDIA's earnings print tomorrow. It looked at most largely viewed here as a huge test for that recent AI-fueled rally.

Let's talk about it with Michael Antonelli. He's Baird Managing Director and Market Strategist. Michael, it's good to see you here. So just put this in perspective for us. How much is riding on NVIDIA's print in terms of what that means for the broader market performance?

MICHAEL ANTONELLI: It's great to be on with you guys. I think it's certainly a major factor. Everybody will be speaking about it. Everybody will be watching "Yahoo Finance" when it comes out. I think it will definitely have an impact on the short-term direction of the market.

It's something like NVIDIA is starting to become more important than, say, an Apple or an Amazon. I don't think so just yet. We do talk about it a lot. It's definitely interesting to look at its chart and see what it's done. Will it have a bigger impact than those names? I don't think so.

But I do think that in terms of what we want to see from them, trying to hold up these lofty expectations is going to be a challenge. There's definitely a lot into the stock.

BRAD SMITH: At the end of the day, even as they're going to be watching "Yahoo Finance" with those earnings do drop, they're going to have to replay this video a lot of times between now and then. We'll get those numbers up.

But, anyway, Michael, as we think about where the investors are going to continue to lean into the continued growth trajectory for NVIDIA, they're going to be facing some tough comps after a while here. What do you expect that to net out in terms of some of the investor sentiment as well?

MICHAEL ANTONELLI: I just think-- let's just talk broadly about investor sentiment around AI. We saw last week, we saw a pretty hot inflation print. And we all looked at the market, and said, wow, maybe we need to rethink rate cuts. What's going on with inflation? When we talk about AI versus inflation, there's a reason why the stock market's not really all that dominated by CPI/PPI inflation. It's because of AI.

AI has essentially sucked all the oxygen out of the room. The theme, the catalyst of AI is just absolutely on everybody's mind. So whether it's NVIDIA or Arista, there's a whole bunch of companies in there, whether it's Facebook and Amazon and Google. Everybody's looking towards this AI theme to try to find the little nuggets of information.

So yes, NVIDIA is important, but so are these other companies that are also a component of this big AI theme. And that's what markets do every now and then. They get obsessed over something. And we're ignoring inflation just because of the AI thing.

SEANA SMITH: I was going to say, Michael, a number of investors are obsessed with the AI story. And a number of investors, obviously, for good reason, are obsessed with the inflation story, and what the Fed is going to do, the likely timing potentially here of these rate cuts. The result-- the econ data that we got out last week, the two readings on inflation, does that at all reset or alter the Fed's thinking just about the progress that's been made so far?

MICHAEL ANTONELLI: Certainly, I think it makes them rethink the whole notion of whether the cuts are about inflation or whether the cuts are about economic growth. And when you look at the inflation numbers, it's understandable why the market continues to wring its hands about rate cuts being too early.

You know the meme where the guys standing around in the pool. And he's just standing around waiting for something. That's us standing around waiting for shelter inflation to fall. It's this one huge thing inside of inflation that refuses to come down as quickly as most of us had hoped it would. And that's holding up the goal of a 2% inflation rate.

So we are still waiting for that. But I do think the market has shrugged off worries about inflation. Again, all we want to do is remove the tails. When you remove the tails, the inflation surging, inflation plummeting, then the market can get its arms around what's happening.

BRAD SMITH: Where is the hottest area then to be in the market with that at play?

MICHAEL ANTONELLI: Hey, you guys just had a great interview with Walmart. Consumer discretionary stocks, consumer staples stocks, consumer stocks are doing really well. I thought that was very, very fascinating what they said. Look at their chart. Look at what they talked about a stronger consumer in their earnings release.

Industrials also continue to lead the way. Does that sound like a market that's being led by only seven names? Walmart is up 14% year-to-date. It's a massive company. All right. That's not one of the Magnificent Seven. Is it?

So consumer discretionary, consumer staples, financials, industrials, they all look really interesting to me. I don't think you necessarily have to just worry about these big tech names. There's a lot of great catalysts. There's a lot of good companies out there right now.

BRAD SMITH: All right. Thank you so much for joining us. Michael Antonelli, Baird Managing Director and Market Strategist. Always a pleasure to get some of your time and insights.